1st time buyer conundrum: pay car loan or extra deposit

Rachb2

Hi everyone,


I hope that you can help, I have conflicting advice and don't really know what the best thing to do is.


So I have a car on finance - there are 4 years left on the finance plan, which I pay monthly. I can afford this without a problem, but I can also overpay without any fee. If I overpay then I save myself quite a considerable amount of money in interest (which works out at £3000 over the period of the loan). My gut feeling is to pay off the loan, thereby freeing up £200 per month and saving the interest.


My husband and I are also trying to buy our first house, luckily we have been given the opportunity to live rent free for 9 months, meaning we will have some extra income. We currently have £17K for a house deposit and we don't really want to touch that. But the extra money that we will have from not paying rent can either be used to pay off the car or put towards the deposit. This may mean a better interest rate when we do get a mortgage.


I have suggested paying off the car loan, however someone has mentioned that this may have an impact on us getting a mortgage (i.e. bad credit as we have paid off early) and we may be better off just keeping it as a deposit.


What are your thoughts please?

Jess716

Nationwide actually made it a condition of our mortgage that we had to pay off our loan, even though there was only 18 months left to run

They wouldn't give us the mortgage unless it gets paid off. So I'd say pay it off

Rachb2

That's good to know Jess716, was that recently with the new mortgage lending regulations?

Angie_B

It depends on affordability. Will having a bit more deposit put you in a better LTV for the house price you are considering buying?

There is no easy answer. I would recommend playing around with the lender affordability calculators and try with the extra money on the deposit and a monthly loan payment, and then again with less deposit but no monthly loan payment. See what the outcomes are in terms of overall lending amount and then decide whether the LTV makes a difference to your overall monthly payments.

Jess716

Yeah, we only got our mortgage offer last Friday, there was only 3000 to pay back on the loan in total. And it still left us with plenty of spare money every month but they said they would only provide the mortgage on the basis of that being cleared before completing

Jess716

Fyi our ltv is 75% so we have a sizeable deposit, yet they still wanted the loan paying off.