Additional Mortgage borrowing vs Car financing loan 16 December 2021 at 7:23PM in Loans 11 replies 507 views

ispookie666

My 14 year old car is on its death bed, its done 188K miles.   
I have my eyes on a car around 40k
My options 
1. use up all my easily liquidatable savings and skimp for another couple of months and buy the car outright 
2. Hire purchase/Car finance with high street banks - APR of 6.7% over 5 years(most rates are higher!). I prefer to own have my own car rather than PCP.  
3. Borrow more on the mortgage, roughly the above amount repaid over 5-6 year.  Hoping to get a rate of 2.19-2.99% (with additional borrowing the LTV would come up to 75%). 

Other than mortgages the only other credit is, a loan (again for another car) - which will be paid off in 6 months. I might actually pay this off, if I go with Option 2 or 3.  

Not sure which option would be best.  



 

Sncjw

Don't go for a 40k car that's an option. Crazy tour thinking of turning a car debt into secured debt on your house. 

Plus if it's new you will. Loose value straight away. 

DrEskimo

All savings are liquid. Unless you mean they are invested?

As above, why does it need to be a £40k car? Either wait until you can comfortably afford it, or buy a cheaper car. Unless you really hate money or have substantial savings, paying such large sums of money for cars is a sure fire way to reduce your wealth....

As you have another car on finance, is there an option to run just the one car, or is two cars a necessity?

Also HP finance is the same as PCP in that you don't own the car until the final payment. The only difference is one has a larger final payment and the other doesn't.

mcpitman

As mentioned the boring/safe/sensible option is to buy a cheaper "new" car. You can get a lot of car for half or quarter of that proposed spend.

After that, the least damaging option is to use your savings, as long as there is enough left over for a good (3months of expenses) emergency fund.

ispookie666

Thanks for all the inputs.  
We do need two cars unfortunately, even though I cycle to work once a week (20 mile round trip).  
My only reason for thinking about adding more to the mortgage was due to the cheap rate of borrowing for 5-6 years.  
Time to sit on it for a while

Jackson1987

ispookie666 said:

Thanks for all the inputs.  
We do need two cars unfortunately, even though I cycle to work once a week (20 mile round trip).  
My only reason for thinking about adding more to the mortgage was due to the cheap rate of borrowing for 5-6 years.  
Time to sit on it for a while

And what car are you looking to get and how many miles do you do? If you have £40k in the bank, whether you need it or not, It sounds crazy to me to spend it all on a car. You also say you need two cars, what for? If one is just to go to the local supermarket and back, you could easilly get one for a £5k or less. If you want a decent car as your daily driver, a used 3 series that is less than a years old can cost £25k.

That's a lot to be spending on a car. Keep the £40k in s savings account and borrow the rest on a loan (2.8% if you have good credit). 

DrEskimo

Jackson1987 said:

ispookie666 said:

Thanks for all the inputs.  
We do need two cars unfortunately, even though I cycle to work once a week (20 mile round trip).  
My only reason for thinking about adding more to the mortgage was due to the cheap rate of borrowing for 5-6 years.  
Time to sit on it for a while

That's a lot to be spending on a car. Keep the £40k in s savings account and borrow the rest on a loan (2.8% if you have good credit). 

Why?

It's still spending £40k on a car, and now you're just introducing additional and avoidable costs in the form of interest.

You'll be lucky to see more than 0.5% interest from a savings account.

Herzlos

If it's new, then PCP might get you a discount (normally a dealer/manufacturer incentive), and you can clear the PCP at any time you want when you have the money available. The deferred balance payment gives you reduced monthlies in exchange for a bit more interest.

That said, if you can't afford a £40k car, then drop your budget a bit. You can get plenty of nice cars for half of that, and it sounds like you're only using it for 4x 20 mile round trips a week.

DrEskimo

Herzlos said:

If it's new, then PCP might get you a discount (normally a dealer/manufacturer incentive), and you can clear the PCP at any time you want when you have the money available. The deferred balance payment gives you reduced monthlies in exchange for a bit more interest.

That said, if you can't afford a £40k car, then drop your budget a bit. You can get plenty of nice cars for half of that, and it sounds like you're only using it for 4x 20 mile round trips a week.

Bit more....it often works out costing the equivalent to double the interest rate of a standard personal loan for the same amount over the same duration...

MrFrugalFever

DrEskimo said:

Herzlos said:

If it's new, then PCP might get you a discount (normally a dealer/manufacturer incentive), and you can clear the PCP at any time you want when you have the money available. The deferred balance payment gives you reduced monthlies in exchange for a bit more interest.

That said, if you can't afford a £40k car, then drop your budget a bit. You can get plenty of nice cars for half of that, and it sounds like you're only using it for 4x 20 mile round trips a week.

Bit more....it often works out costing the equivalent to double the interest rate of a standard personal loan for the same amount over the same duration...

HP will be considerably cheaper on a car of that price as you’ll be paying capital and interest from the word go, with the capital repayments increasing with each payment made, vs a PCP whereby a fixed optional final payment will bear a fixed interest for the term of the loan and therefore no capital repayments on a large proportion of it. Consider it like taking out a £20k personal loan at 6.7% and just paying the interest each month for 4 years....

ispookie666

Still to and fro with this.  
Can I do the purchase for 35,000 on my Credit card and do a balance transfer?