ReMortgage to buy a car?

beachbeth

Our car is getting very old and we want to treat ourselves and have a brand new one. We are only looking to borrow £8,000 for a Mazda 2 but don't want the normal repayments that you get from a loan, although Northern Rock has a very good interest rate.

We recently had a letter from our building society asking if we wanted to borrow any more money (our house is worth about £170,000 and we owe £37,000). We are very tempted to borrow the money for a car. I don't suppose the building society would like giving it to us for a car but is this a daft idea anyway? We have 13 years left on our mortgage so, in effect, it would be a car loan over 13 years. Low repayments compared to a loan though.

Robert_Sterling_3

What is the Northern Rock's good rate?

MarkyMarkD

I don't personally think it's a good idea to borrow for a short-term purchase (like a car) over the long term.

Furthermore, the rate may not be materially more attractive.

Although the rate on a mortgage further advance (typically the lender's SVR, so around 6.8%) may appear attractive, the APR on a repayment mortgage over a short term increases dramatically in the later years if the mortgage is on an "annual rest" basis.

If your mortgage is on a daily interest basis, the point above doesn't apply.

If you just want to reduce the monthly payments, A&L (https://www.alliance-leicester.co.uk) do a "car purchase plan" with the same interest rate as their personal loans (i.e. 5.8% APR typical for £5k to £15k) whereby you defer part of the balance for the term of the loan, and make repayments on the rest.

At the end of the original term, you can continue paying at the same rate until it's paid off, or pay off the whole amount at once.

If you really can't afford even this reduced level of repayments, are you really sure you should be buying a brand new car?

I hope by "brand new" you mean "from a broker or car supermarket, not a main dealer" as well as you can pay far less than list price for almost any new car.

beachbeth

I hope by "brand new" you mean "from a broker or car supermarket, not a main dealer" as well as you can pay far less than list price for almost any new car.

My husband works for a garage and can get a new car a bit cheaper than normal. We don't want an old car that will come with problems (although I know new ones can too!) We can afford the repayments on a loan but want to be able to save up for a nice holiday too!

beachbeth

What is the Northern Rock's good rate?

5.6%

http://www.northernrock.co.uk/html/ploans/personal_loans.htm

Only a small difference between Northern Rock and Alliance and Leicester I know, but Northern Rock is still cheaper. Eg £8,000 over 48 months without loan protection is £186.04 per month with Northern Rock and £186.74 with Alliance.

Although with Alliance's Car Plan they defer £2,400 of this and this makes the loan £142.10. At the end of the 5 years you either pay them the £2,400 or sell the car to pay this back and start again with another plan.

Thanks for suggesting this, Marky. Its quite interesting and I will show my sister-in-law too who is also about to buy a new car!