Need to replace car - to use money from savings for deposit or get a car loan?

chases0102

Hi everyone,

Myself and OH trying to save for mortgage at the moment. We need a new car, as we are thrilled to say that, all going well, we'll have a new member joining us in March.

I'm split between two options - using the money I have saved already for a deposit, and taking out a load from the bank.

Cost of car is roughly 8k, and the cost of credit would €950 over three years.

I know ultimately only I can answer this, but would fellow boardsies do - take the hit initially and work the way up, or take the loan and leave the mortgage savings well alone?

Smiley012

I'm sure you'll get a variation of advice here, as you said, ultimately only you can answer this... however, these are my thoughts -

I would take the loan, and pay it back over three years. For these reasons:

1. Some/most banks will not want to see you dipping into mortgage savings, it looks bad. Keep in mind, they are supposed to only look at the last 6 months worth of statements, but where I got my mortgage with, I bank with them too. They went right back until I was in college on my current account statements.

2. Paying a loan regularly, on-time and never missing payments will show that you are able to handle having debt, while successfully saving for a house, and adjusting to living costs.

Just my experience!

fits

Can you apply for the mortgage before you absolutely need to buy the car? Car loan repayments, and a dependant will sharply reduce your repayment capacity in the eyes of the banks.

(Oh and congratulations!)

athtrasna

Mod note

Thread title updated for clarity as per forum charter.

chases0102

Cheers for the advice folks!

So any mortgage won't happen for at least another 12 months - we simply don't have the capital yet. Also, I agree about how the bank may look at us in 12 months time - dependent, and a car loan.... But I'm hoping that we will manage carefully, and indeed the fact that the car loan will be paid efficiently will come into play also.

Glenbhoy

The loan repayments will be deducted from your monthly net income when determining what you can afford (as will childcare).

I don't think it'll particularly help your application in the way you anticipate, i.e they don't care that you are repaying the loan as agreed, they would only care if you weren't!!

Personally, I'd use my savings, but maybe there's a case for going half and half and repaying over 18 months/2 years? Realistically, it'll probably be 18 months before you're applying (I say this as a father of 3 young children).

Essentially, the annual loan repayments will reduce your loan by approx. triple that amount. So, presuming repayments are approx 3K p.a, the amount offered will most likely be reduced by approx 10K.
You should therefore calculate how much reducing your deposit by 8K (less the amount which will be saved on loan repayments and can be added back to your deposit before applying) will affect the maximum you will be offered.

I'd get myself to the motors forum for advice on sub 8k options. You'd be amazed what less than that can buy.

Failing that I'd go the loan route, option to clear it with savings will remain if mortgage lender wants that done.

Idbatterim

eh option b if you are trying to save, buy a 1k bangernomic... anything sub 1.5L is still cheap to tax on old system...

shane b

Don't be surprised if you go for a car loan the bank may ask you to clear it for the mortgage application. When we applied initially applied for our mortgage in 2012, BOI told us to clear the car loan and any credit cards we had before they would even consider us. That amounted to about 13K at the time and was a large chuck of our deposit.
Don't know if the same rules apply now or not.

ted1

Just spend around 2k on a car, you'll get a good reliable for focus or similar.

Nekarsulm

I would buy a 2004-ish Passat diesel. Get one that has had the clutch done in the last year ir so. Pay no more than 2k.
Good solid car, and no need for another loan hanging over you at an expensive time. With a child and a new house there are always unexpected expenses cropping up.

witchgirl26

I asked AIB's chat about this when I was looking at a car a couple of years ago and saving towards a mortgage. Their response was that it would not look bad on their part to remove an amount from savings for a purchase like that as long as the regular monthly saving amount continued. They don't penalise because of it. I did a bit of a half and half - I bought a car that was €5k (after trade-in) and took €3k from savings and a €2k loan that I paid off in a year.

Sleepy

I'd have two suggestions:

1) buy a bangernomics car. Mine is a 2003 2.0 litre Saab 93 Turbo that cost me under €1,500 and has given me no trouble whatsover. Sure, it costs €710 a year to tax versus what a more modern car might cost but it's comfortable, reliable, averages over 35mpg with mixed city/motorway driving. Spending a bit more on road tax and petrol basically means you can get a nicer car to drive for less money once you can get over having an older year on the reg.

2) If you're 12 months away from having a deposit, is it possible one of your parents (or your partners parents) could "gift" you the shortfall in your savings? If there's no appreciable difference between your rent and your new mortgage, it shouldn't be difficult to pay them back over the same 12 months that it'd otherwise take you to save that cash.

ongarboy

Agree with the other posters there about choosing a much more inexpensive car. Why do you need to pay €8K? That' would be fine if you didn't have other future financial obligations like saving for a mortgage. Done Deal has tonnes of ads for reliable mid 2000s cars for around the €2K mark with full NCTs etc.

I paid 1300 for a 9 year old (at the time) Toyota Avensis and have had no problems whatsovever, has passed 5 NCTs in a row since I've had it.

chases0102

Thanks for all the suggestions and advice folks, really helpful.

It can be difficult sometimes to see where the banks' heads are at in relation to mortgages and loans...

El Kabong!

What car do you have now?

Idbatterim

of course the banks probably wont have an issue with it, they are making more money on the car loan!

Bigus

chases0102 wrote: »

Thanks for all the suggestions and advice folks, really helpful.

It can be difficult sometimes to see where the banks' heads are at in relation to mortgages and loans...

And babies too. So be cute.

I'd second the advice on not spending 8 k now and get advice in the motoring sections on boards.