Are hire purchases viewed in the same light as credit cards?

GrumpyTeacher

Hi all,

Just wondering if a 20k car hire purchase is seen in the same light as credit cards- I'm applying for a mortgage with a couple of late payments (show up as 1/amber) and concerned the car credit could effect it. We'll have a LTV of 79/80% if our offer on the house is accepted.

Joint income of £45k looking to borrow around £150k.

Thanks!

kingstreet

A loan or HP sees the monthly payment deducted from income to establish affordability.

Credit cards use upto 5% of the outstanding balance.

reallyjammyjam

"Credit cards use upto 5% of the outstanding balance. "

Sorry kingstreet, could you explain this further? I am interested to know as I will have an outstanding credit card when I apply in a few months time

Let_Us_See

Bank or hire purchase loan actual monthly payment is annualised (x12) and deducted from salary for assessing mortgage affordability.

Credit card balances (does not apply if balance cleared monthly) are calculated up to 5%, annualised and again deducted from income.

reallyjammyjam

ah OK thanks. Good to know, I wasn't aware of this rule.

GrumpyTeacher

So are they looked on more favourably?

Let_Us_See

emmajanekitchen wrote: »

So are they looked on more favourably?

Not really - both are treated as existing financial commitment.

mattsday

£10,000 loan on a 4.9% APR over 30 months is £354.85 a month, or £4,258.20 a year.

£10,000 on any credit card would count as £500 a month, or £6,000 a year.

So, in my example your personal loan would need to be almost 34% APR to compare as bad as a credit card in the same situation .