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Trying to understand whether a personal loan or car on finance is "better" for remortgaging...

flakmagnet
flakmagnet Posts: 48 Forumite
Part of the Furniture 10 Posts Combo Breaker
Hi all,

Apologies if this is very obvious, but here's my situation. TLDR at the end.

I've been on a fixed rate mortgage on my own this last year, a 2 year fix, ending next year. During this year due to a combination of buying essentials for the new house, getting out after the pandemic and overspending as a bad way of compensating for depression, I've currently got £3.5k on a 0% interest (for the next year) credit card. I'm in a steady job, repayments are fine and I'm planning to repay it fine over time. Might end up having to take a 3%ish hit to shift about half of it in a year's time. Unfortunately I'm at the limit of the credit card at the moment and my car is making some worrying noises and may well be getting towards the end of it's life, so I may be looking at getting a "new" one. I'm thinking a budget of £3-4k seems appropriate for a non flash car around my budget. My options (as far as I see them) are
A personal loan of 7k (~3% interest, repayments are manageable) and pay off the credit card 
A personal loan of £3-4k and just buy the car outright with that, still have the credit card debt
Get a car on finance through a dealer, still have the credit card debt.

So, in terms of not completely making life impossible for myself when it comes to remortgaging next year, are any of the options better or worse as far as credit score/however banks will assess my eligibility? 

Thanks in advance for you time

Comments

  • DrEskimo
    DrEskimo Posts: 2,364 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    Don't make the same mistake many do and get yourself into thousands more in debt over a car due to a knee jerk reaction over a potential repair bill.

    Pay for the work to be done, keep your current car, work on paying down your current debts, then start saving for a replacement. Only do that when you are debt free and can pay in cash.

    If the car becomes unrepairable, then seek advice. Until then, don't panic!
  • Ebe_Scrooge
    Ebe_Scrooge Posts: 7,320 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
     I've currently got £3.5k on a 0% interest (for the next year) credit card. I'm in a steady job, repayments are fine and I'm planning to repay it fine over time. Might end up having to take a 3%ish hit to shift about half of it in a year's time.
    First off, you mustn't bank on being able to transfer any remaining debt to another 0% card.  Get it paid off before the promotional deal expires.

    My options (as far as I see them) are
    A personal loan of 7k (~3% interest, repayments are manageable) and pay off the credit card 
    A personal loan of £3-4k and just buy the car outright with that, still have the credit card debt
    Get a car on finance through a dealer, still have the credit card debt.

    So, in terms of not completely making life impossible for myself when it comes to remortgaging next year, are any of the options better or worse as far as credit score/however banks will assess my eligibility?
    What car have you got, how old, what's wrong with it?  Your priority needs to be clearing the credit card debt.  If you're thinking of buying a replacement car for £3-4k, you run the risk of faults developing with that one.  Far better to shell out a few hundred now and keep the car you've currently got.
    In terms of remortgaging, ignore your score.  Lenders will look at many factors, a major one being your current level of debt.  Al other things being equal, the best thing you can do to increase your chances of being accepted for a good deal is to reduce all outstanding debt as far as possible.

  • flakmagnet
    flakmagnet Posts: 48 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    First off, you mustn't bank on being able to transfer any remaining debt to another 0% card.  Get it paid off before the promotional deal expires.

    Not sure I can guarantee that I'll pay it off before it expires, but I shall certainly try.

    What car have you got, how old, what's wrong with it?  Your priority needs to be clearing the credit card debt.  If you're thinking of buying a replacement car for £3-4k, you run the risk of faults developing with that one.  Far better to shell out a few hundred now and keep the car you've currently got.
    In terms of remortgaging, ignore your score.  Lenders will look at many factors, a major one being your current level of debt.  Al other things being equal, the best thing you can do to increase your chances of being accepted for a good deal is to reduce all outstanding debt as far as possible.

    It's a 2006 Mazda. It's been reliable for the last 8 years or so I've had it but over the last 6 months I've had to take it in 3 times and it's going in again this week. I'm hoping it's just a wheel bearing issue, but I'm trying to get my head around other options if this ends up being a repair I can't afford. I've assumed something was a cheap fix before and it wasn't. So if it's something I can't afford, mortgage wise etc I'm better off taking a small loan to pay for the work and pay that off ASAP? 
  • Ebe_Scrooge
    Ebe_Scrooge Posts: 7,320 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker

    What car have you got, how old, what's wrong with it?  Your priority needs to be clearing the credit card debt.  If you're thinking of buying a replacement car for £3-4k, you run the risk of faults developing with that one.  Far better to shell out a few hundred now and keep the car you've currently got.
    In terms of remortgaging, ignore your score.  Lenders will look at many factors, a major one being your current level of debt.  Al other things being equal, the best thing you can do to increase your chances of being accepted for a good deal is to reduce all outstanding debt as far as possible.

    It's a 2006 Mazda. It's been reliable for the last 8 years or so I've had it but over the last 6 months I've had to take it in 3 times and it's going in again this week. I'm hoping it's just a wheel bearing issue, but I'm trying to get my head around other options if this ends up being a repair I can't afford. I've assumed something was a cheap fix before and it wasn't. So if it's something I can't afford, mortgage wise etc I'm better off taking a small loan to pay for the work and pay that off ASAP? 
    On the face of it, it sounds like it would be worth repairing.  Wheel bearings aren't hugely expensive.  Let the garage have a look, and take it from there.  But essentially, even if you need a small loan to pay for the repairs, I would say that's better than shelling out a few thousand for a replacement car that may very well have similar issues in the next few months.

  • flakmagnet
    flakmagnet Posts: 48 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    On the face of it, it sounds like it would be worth repairing.  Wheel bearings aren't hugely expensive.  Let the garage have a look, and take it from there.  But essentially, even if you need a small loan to pay for the repairs, I would say that's better than shelling out a few thousand for a replacement car that may very well have similar issues in the next few months.

    Thanks, I'll definitely be looking at repairing first option. Just good to know what the best course of option is if I'm wrong and it's not that and it's something that's a lot more. Much appreciated.
  • Ebe_Scrooge
    Ebe_Scrooge Posts: 7,320 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    On the face of it, it sounds like it would be worth repairing.  Wheel bearings aren't hugely expensive.  Let the garage have a look, and take it from there.  But essentially, even if you need a small loan to pay for the repairs, I would say that's better than shelling out a few thousand for a replacement car that may very well have similar issues in the next few months.

    Thanks, I'll definitely be looking at repairing first option. Just good to know what the best course of option is if I'm wrong and it's not that and it's something that's a lot more. Much appreciated.
    It's always difficult with cars.  On the one hand, better the devil you know.  You know the car, you know what's been replaced, you probably have an idea of what's on its way out.  If you're buying a second-hand car, even from an approved dealership, you never really know its history, you never know quite what's in store.
    Case in point - our main car, bought second-hand at 8 years old, now 15 years old, has recently needed a fair amount of work doing.  Clutch, wheel bearings, exhaust, a few other bits and pieces, and I've had the cambelt + waterpump changed as it was way overdue.  All in about £1500.  A hefty repair bill all told - but I now fully expect it to give us another another 7 -10 years of service without anything major needing doing.  If I were to buy a "new" car for £1500, could I expect the same sort of longevity?  I highly doubt it.
    Yes, of course there comes a time when a car is destined for the great scrapyard in the sky.  But it's always the case that, if a car is basically sound, even a fairly high repair bill can make economic sense.
    And, most importantly for your situation, you really do want to be limiting the amount of debt you're carrying in preparation for a mortgage application.

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