Car Purchase - Borrow more on mortgage or Personal Loan?

Jones578

Hi all.
My wife and I are planning to purchase a pre-reg vehicle from a dealership.
The car price is approx £22k and we will pay £5k from our saving and approx £2k from the sale of my current car.
We will therefore need a loan of approx £15k.

We bought our home using Government's HTB Equity Loan scheme nearly 2 years ago and our fixed mortgage deal is coming to an end at the end of September this year,
The house price was £310k 2 years ago. We paid 5% deposit, 20% borrowed from government with the Equity Loan scheme and 75% from mortgage lender.
The current house price should be around £340k, and our mortgage balance at the end of term would be around £218k. So our LTV ratio will be approx 64%.
We are planning to re-mortgage with a 3 year fixed deal as it will tie in with our HTB Equity Loan interest free period.

We are unsure if we should borrow the £15k from a personal loan or borrow more from our mortgage lender when we re-mortgage.

The personal loan interest rate should be around 3% and our mortgage interest rate would be 1.69%.
So it seems borrowing from mortgage would be cheaper?
No matter we are borrowing from personal loan or mortgage, we are thinking to have a payment term of 36 months so it ties in with everything else.

I understand that our equity of our house should be currently around 16%, i.e., approx £54k, after deducting the 20% Equity Loan and £218k mortgage balance, out of our £340k home.
By borrowing extra £15k from mortgage, it should increase our LTV ratio to approx 68.5%, which should not make much difference to our mortgage situation as our lender offers the same rate for LTV between 60% to 75%.

Our annual income are approx £40k each (i.e., £80k in total) and we have no dependants.

I hope I have explained our situation clear....
Any questions please ask and your advice would be much appreciated. :beer:

Mogley

What car are you looking at? Your £7k would buy a reasonable 3-4 year old car from a reputable dealer. What are your reasons for wanting a pre-reg. car at £22k?


The reason for asking is lots of people get car loans and I have read many a thread on here where having a loan for a car becomes a real burden to the finances. Situations change and suddenly the payments become un-manageable. You have a fair amount saved which will buy a decent car and would free-up the money you can afford to pay on a loan to overpay the mortgage or save for other future purchases/event.


If you are dead set on getting the pre-reg. car, I would go for the loan option over securing more debt against the house.

ronjo94

Hi. A little over 3 weeks ago I purchased a new car on PCP over the phone. The terms were acceptable to me. Later the same day the dealer told me that the car had been ordered and that the finance had been accepted. The order form was sent to me via email which I signed and returned. The PCP contract was not sent however. I contacted the dealer who replied that he would contact the finance co. and I should receive the Docs in a couple of days. This did not happen and I contacted the finance co. directly. They referred me back to the dealer who was non-committal and suggested that I wait. I have not yet received the contract so, how long do you think that I should wait. Is there a problem that no one wants to talk to me about? Perhaps you could advise me please.

Jox

Just buy a car you can afford

Durban

Each to their own and all that , but madness.
How much will that £22,000 car be worth after a year or two?
It is such a depreciating asset.
Your circumstances could change, one of you could lose your job, and you would still have to pay it off and it would be worth far less than you paid for it.
Don't put the debt on the roof over your head.

[Deleted User]

A 22k car would probably be worth around 18-19k the minute you drive it off the forecourt, it would be utter madness to add such an item to your mortgage and still be paying for it in 20 years, as already suggested the better way would be to buy a car around 6/7k

MataNui

Forgetting the typical crap you are already seeing about how a cheap car is just as good, blah blah in general a loan would be better.

Borrow as little as possible for as short as possible. Dont pay for over 20 years (mortgage) for an asset that will be probably scrapped for a few hundred by that time. EDIT #DONT put it on the mortgage. If you cant get a loan over 3-4 years at a good rate that means you can EASILY afford the repayments then look for something cheaper.#

Also just off to test drive a 20k 'used' car. Why? Do i 'need' that sort of car? Nope, do i f as like. But i do want it and can afford it. Since i gave up motorcycles cars have become sort of a hobby. A more family friendly compromise to motorcycling. So for me a car is more than just a means of getting from A to B. Its a fun day out in something that looks good, goes like stink and feels great to drive.

But be wary posting stuff like that on these boards. If your not a beatnik socialist and actually want something just because you 'want' it rather than 'need' it you will probably get flamed.

mcpitman

MataNui wrote: »

Forgetting the typical crap you are already seeing about how a cheap car is just as good, blah blah in general a loan would be better.

Borrow as little as possible for as short as possible. Dont pay for over 20 years (mortgage) for an asset that will be probably scrapped for a few hundred by that time. EDIT #DONT put it on the mortgage. If you cant get a loan over 3-4 years at a good rate that means you can EASILY afford the repayments then look for something cheaper.#

Also just off to test drive a 20k 'used' car. Why? Do i 'need' that sort of car? Nope, do i f as like. But i do want it and can afford it. Since i gave up motorcycles cars have become sort of a hobby. A more family friendly compromise to motorcycling. So for me a car is more than just a means of getting from A to B. Its a fun day out in something that looks good, goes like stink and feels great to drive.

But be wary posting stuff like that on these boards. If your not a beatnik socialist and actually want something just because you 'want' it rather than 'need' it you will probably get flamed.

Who'd have thought you would get money saving advice on a Money Saving Forum?

Ebe_Scrooge

Even if the mortgage lender would lend you the money for a car ( unlikely ), it would be madness to secure a car loan against your house. What happens if you fall ill, get made redundant, cannot make the payments for any reason ? That's your house at risk.


And yes, the APR for a mortgage will be lower than for a personal loan - but how much interest will you pay over the term of the loan ? A personal loan at a reasonably sensible rate for say 3 or 4 years will work out much cheaper than borrowing against your mortgage for - what, 20 years ?


So yes - putting aside the ( perfectly reasonable ) view that you could buy a cheaper car ... if you want to borrow money to buy your car, then a standard personal loan from one of the mainstream lenders is the way to go.

simpson_77

you cannot add additional borrowing to your mortgage if you are using the HTB scheme.

Loan it is

Jones578

Thank you for all the advice.
I am not too surprised to see most people suggest it is better to get a 2nd hand used car than a pre-reg car :cool:

I think I should split my response into 2 parts....

Pre-reg vs Older 2nd Car
The car that we are thinking to buy is a Hyundai Tucson Auto SE Nav.
We are planning to have baby soon (although no baby just yet) and feel we will need a bigger car than my current super mini hatchback.
We are interested to buy new / nearly new as we would want to take advantage of their 5 year free warranty so that we do not have to worry about repairing etc as long as possible.
Looking at AutoTrader, the car will probably depreciate by around £3k - £4k in its 1st year and further £2k in the 2nd year, which is similar to the cost if we are leasing it instead, so I think it is not too bad...?
My wife can only drive automatic as she does not have a manual driving licence (and she would prefer not to take driving lessons again if possible).

Personal Loan vs Mortgage
Thanks simpson_77 for his comments above.
I just checked my HTB agent's website and the re-mortgage amount indeed cannot be more than the existing loan: https://www.myfirsthome.org.uk/iwantto/remortgage/

The new mortgage must be no more than the existing loan with the main lender mortgage. The exception to this is if you are going to use the additional borrowing to repay your equity loan.

So personal loan it is then...

Although we won't be able to borrow more from mortgage for the car purchase, out of curiosity, would it be possible to specify a short term, say 3 years, for the extra borrowing so that it would pretty much work out like a personal loan if we are not using HTB?
I suppose the extra borrowing will be calculated alongside the main mortgage, as if it is a separate mortgage, rather than adding it to the big sum and have to spread across the entire term of the main mortgage?