Best way to do things

adamj1984

Hi Guys,

I'm after a little advice if possible, I have some outgoings and I want to save a deposit for a mortgage - and I don't know which way around to do it.

So my financial situation currently reads as below

Monthly income after tax £3k

Council tax debt £2431 (paying off at £304/month) no interest
Car Finance £13,171, £399 per month @25% apr (terrible rate I know) the figure shown includes the lifetime interest, it was a 10k loan
Car Insurance £103/month
Car Tax £13/month
Lowells £30/month (£453 remaining - could pay this off quickly and easily but as its not reporting to any of the agencies its bottom of my priority list)
United Utilities £60/month (£306 remaining - but I am on a payment match scheme so only 3 payments left)
Sky £60/motnh
personal loan £5,134 £103/month @11%
Rent £548/moth

I started a new job in June which gave me a huge pay increase so I am now taking home around £3k after tax / month

My question is do I pay off the car finance first to reduce the interest, or do I save for a deposit whilst paying it off?

I know common sense says pay off the car finance @ 25%, but I'm also paying £550 / month in rent which is dad money, if paying off the car finance first means it takes an extra 5 months to buy an house, then I am just gonna spend the interest I save on rent anyway, so would I be better just maintaining standard payments on car, and let it stay on there and improve my credit rating, I just cant figure out the best way to go about it.

Any advice is greatly appreciated

Thanks guys

Adz

adamj1984

forgot to mention, I also have a credit card that I use monthly which I pay in full at the end of each month because thats another stupid rate, but I'm using it to try and boost credit rating, although I've been accepted in principle for an 80% mortgage, improving credit rating can only help right?

Thats about £700 per month and I use it for fuel etc, and fags...... really need to quit smoking, keep trying but easier said than done, I probably spend £300 a month on fags at 20 a day......

But smoking is another journey I'm on, currently trying hypnosis...

TheAble

I wouldn't run before you can walk. £550/month in rent isn't that bad for the meantime; your immediate priority is paying off those debts (25% to buy a car is insane - you could have bought a decent used small car just with the interest..!!). Once you've paid all that stuff off you can save for a deposit and you should then be offered an attractive interest rate on the mortgage.

Oh, and cut out the ciggies and the sky TV..!

adamj1984

TheAble said:

I wouldn't run before you can walk. £550/month in rent isn't that bad for the meantime; your immediate priority is paying off those debts (25% to buy a car is insane - you could have bought a decent used small car just with the interest..!!). Once you've paid all that stuff off you can save for a deposit and you should then be offered an attractive interest rate on the mortgage.

Oh, and cut out the ciggies and the sky TV..!

Yeah the car interest is insane, I bought it in May, Long story short I cleared 18k of bad debt between jan 2020 and may of this year, I had a company car at my old job, the new job which gave me a £20k pa basic increase didnt offer company car, the finance was the only offer I could get, so looking at the bigger picture I didn't have much choice (company policy meant the car had to be under 3 years old)

Yeah I must admit I have been considering cancelling sky for some time, I barely utilitise it anyway, and as mentioned - the ciggies is a work in progress, not just from a financial standpoint.

TheAble

Ps you don't "improve your credit rating" by steadily paying off a 25% loan. All your doing there is screaming to a lender that you're terrible with money and therefore a bad risk.

adamj1984

TheAble said:

Ps you don't "improve your credit rating" by steadily paying off a 25% loan. All your doing there is screaming to a lender that you're terrible with money and therefore a bad risk.

I didn't think lenders saw the APR of loans, only the outstanding value, I was thinking the consistent on time payments would be of benefit, you have just pretty much answered my original question if the car loan is going to be a negative as far as my credit is concerned so thank you

Sncjw

Be mindful that any outstanding debt will be taken off the total amount that the mortgage provider will give you.

Also if you are buying a house on your own you may need to look at homes within a relasitc amount. Even as a couple we went for something that's afford ale to pay each month and it was no where near the top limit of what we could get 

adamj1984

Sncjw said:

Be mindful that any outstanding debt will be taken off the total amount that the mortgage provider will give you.

Also if you are buying a house on your own you may need to look at homes within a relasitc amount. Even as a couple we went for something that's afford ale to pay each month and it was no where near the top limit of what we could get 

Thanks SNCJW, 

as far as house is concerned, I'm on close to 60k per annum with bonuses now, and only applied for an 80k mortgage just to get me on the ladder, rather be paying into my own future than paying somebody elses mortgage, the idea is to get a cheap house for a couple of years whilst credit history improves, then look to move up to a bigger house.

My credit history is what is stopping me, affordability I can easily manage it, but long story short, from the age of 18-35 (last jan) I abused every bit of credit I have ever had, ended up with Defaults, CCJs etc etc.

Lightbulb moment in jan last year, cleared significant debt since then, and everything is improving slowly, following comments from theAble with regards to the car loan being viewed in a negative light due to interest terms i'm going to hammer that and get it cleared first, then save deposit.

enthusiasticsaver

The car loan is a negative and the interest rate is a reflection of your past credit record.  You will not get a mortgage at a decent rate so I would put that straight out of your head until past defaults drop off your record.  That is usually 6 years from the default dates. If you only started to sort yourself out in 2020 realistically you will have to wait until 2026 to get a mortgage at a reasonable rate. Use the next five years to clear the car finance and other debts  then start saving for a deposit. Quit smoking as surely that £300 is better saved than spent on setting light to it and get rid of sky.  

adamj1984

enthusiasticsaver said:

The car loan is a negative and the interest rate is a reflection of your past credit record.  You will not get a mortgage at a decent rate so I would put that straight out of your head until past defaults drop off your record.  That is usually 6 years from the default dates. If you only started to sort yourself out in 2020 realistically you will have to wait until 2026 to get a mortgage at a reasonable rate. Use the next five years to clear the car finance and other debts  then start saving for a deposit. Quit smoking as surely that £300 is better saved than spent on setting light to it and get rid of sky.  

I'd rather have a rubbish rate mortgage, than continue to pay 6k per year to rent somewhere, thats 30k over 5 years, my last ccj drops off dec 24, at which point I will have 2 defaults, one 3 years old one 4 years old.

Surely a mortgage at a rubbish rate (been offered 5.5%) is better than renting somewhere, even if only until my credit rating repairs enough to get a better deal.

Agree on the smoking comment fully though.

TheAble

£80k @ 5.5% is still going to cost you £4400 in interest a year though - not a million miles off your rent cost. You might of course reasonably expect some capital appreciation but that can't be guaranteed. Factor in all your purchase costs as well, mortgage set up fee etc. Another consideration is that while people often think of properties as assets they can also be liabilities if they suddenly need a meaningful repair doing, so you want to make sure you have a good emergency fund in place to tackle such potential problems.

Your shout of course but personally I don't think you want to go into the responsibilities of property ownership when you're humping a load of debt around.