Credit card debt VS Car loan debt - which is best while applying for your first mortgage?

smoles

Hello Everyone,

I've done my best to find an answer to this and have so far been unsuccessful.

I have £7435 left to pay on my car which I am paying 7.9% annual interest on and have 28 monthly payments left.
I have 999 on Experian and have no other debt and all other outgoings are limited to the necessary ones with the exception of £16p/m for Sky and £7 or so for Netflix.

I've checked on here and I can likely get a 0% credit card to pay off the car (fee of £49). This has the obvious benefit of having no interest (around £550 i think?) to pay BUT myself and my husband will be applying for our first mortgage this time next year.

Does anybody have any knowledge on how £3.5k of credit card debt would stack up against £3.5k of car loan debt when it comes to being approved for a mortgage? If it's likely to make a big enough difference we would be prepared to delay the mortgage application by two or three months to reduce this debt to zero before applying.

Thanks in advance for any advice

foxy-stoat

It wouldn't be much difference you will still have the debt, but I would keep the loan where it is and get it paid off quicker.

The only difference it would make is say your monthly payments on the loan are £300 and the lender, whoever that would be, allows a say 3% percentage for credit card repayments.

So for affordability they would have a fixed monthly repayment of the loan of £300 vs a variable monthly payment on a credit card of £105.

If your numbers are that close then you are in trouble either way.

smoles

Thanks for the info, I reckon i'll up my monthly payment to the car company to get it cleared quicker.

@Foxy-stoat What do you mean exactly by 'you're in trouble either way'?

foxy-stoat

smoles wrote: »

Thanks for the info, I reckon i'll up my monthly payment to the car company to get it cleared quicker.

@Foxy-stoat What do you mean exactly by 'you're in trouble either way'?

If £3500 of debt (and associated minimum payment) will cause your mortgage lender to decline then your numbers are way to tight. Having that amount of debt should not have any bearing on borrowing 6 figures on a mortgage.

amnblog

Sounds like you are paying around £265 pcm on the loan whereas a lender with generally allow 3% of any card balance.

If you buy a home in a years and expect to have £265 pcm on the loan or £3,500 on a credit card, then credit card sounds less aggressive for affordability.

Once the loan is down to 12 months payments the mortgage lender will most likely ignore it. So that changes the dynamic again.

smoles

Ah cool, I didn't realise that £3.5k wouldn't be seen as that big of a deal or that if it has less than 12 months left that it could be ignored.

I've upped my monthly payments and will also have my student loan paid off by the time we apply too...so fingers crossed all goes well.

Thank you for your advice

Crumble2018

If it makes you feel any better, we still have 18k outstanding on a loan, and 2 car loans at around 12k each. Yes, it affexted our affordability, but we got a mortgage through Nationwide without any issues at all - they didn't even check our bank statements.

csgohan4

elsimsy wrote: »

If it makes you feel any better, we still have 18k outstanding on a loan, and 2 car loans at around 12k each. Yes, it affexted our affordability, but we got a mortgage through Nationwide without any issues at all - they didn't even check our bank statements.

Devil is in the detail, if you earn 100k and have 3.5k in debt for a 300k house, that is absolutely no problem


Generally can borrow x4.5 of your income excluding debt, try some mortgage calculators, they are generally accurate

Crumble2018

csgohan4 wrote: »

Devil is in the detail, if you earn 100k and have 3.5k in debt for a 300k house, that is absolutely no problem


Generally can borrow x4.5 of your income excluding debt, try some mortgage calculators, they are generally accurate

We don't earn anywhere near 100k between us. But it certainly affected how much they would lend us. Because of our debt, we can only afford a flat. But the point is, I was certain we wouldn't get a mortgage at all because of our debt, but that was definitely not the case.