# How to repay loan to parents AND change car?



## morpheus (30 Nov 2006)

I got a loan of money to clear a car loan from my father this year, so we could get a mortgage.

Now I want to change my car early next year and pay my father back, but how would i go about it?

so far this is all I can think of...
Start paying my dad back so much per month myself for the 8k he loaned me, when it comes to changing the car, trade it in against the cost of a newer car (id probably get 7k if i was lucky) and secure loan on the balance left after trade in?

is there any other route I could take?

im seriously confused here as to what to do, i mean i can afford repayments but im not sure as to how to go about it.

thanks


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## zag (30 Nov 2006)

You could always not trade in your car.

I don't see the complication.  You say you can afford to repay your Dad for the existing loan.  I think you say you can also repay the bank for the loan you plan on taking out to buy the new car next year.  I presume you can afford to repay the mortgage you talked about.

If the problem is how to get a loan, I think you will find that you can't secure a loan against a car.  You can take out a loan to get a car, but unlike the case with houses, banks aren't too interested in repossesed cars.  You could do hire purchase (which is kind of like securing a loan against the car, only it's not because the bank retain ownership of the car, not you) but it's not normally the best value.

If you want to go down the route of just getting a plain old non-secured loan then you just need to apply to the bank for a motor loan or term loan and convince them that you can meet the repayments.

z


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## morpheus (2 Jan 2007)

Been mulling over this for a while.

My options are limited but Ive been considering taking a loan of 14K over 5 years, pay back the 8 k immediately to my dad, left with 6 to use along with my car trade in to purchase a new car, i.e. 12-14k towards a newer car.

this means im taking out 14k at roughly 9% interest (ill shop around for lowest personal loan interest rate)

I could also take out 1 loan at personal interest rate over 5 years for 8k then pay off my dad and take out a second loan for the 5 or 6k ill need to add to my car trade in at car loan interest rate. this would save me a small amount of money over the 5 years since only the first loan of 8k would be at the higher personal interest loan rate.

how easy is it to get loans when you have a mortgage, from what i remember about previous finance for cars ive not been asked have i got one and indeed organised my last one over the phone in a few hours. Ive a penalty free credit history.


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## NiallP (8 Jan 2007)

Why not get a larger mortgage to factor in the cost of repaying your father? All you need to say is that it is for unforeseen home improvements. If you can afford the repayments on a 15k loan at 9%, you will definately be able to afford the repayments on a loan spread over a longer period at a lower interest rate.


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## CCOVICH (8 Jan 2007)

NiallP said:


> Why not get a larger mortgage to factor in the cost of repaying your father? All you need to say is that it is for unforeseen home improvements. If you can afford the repayments on a 15k loan at 9%, you will definately be able to afford the repayments on a loan spread over a longer period at a lower interest rate.


 
A longer period at a lower interest rate could well mean more interest.

If you want to raise €15k through your mortgage, do it over 3 years (or similar), not over the existing term (unless it is for capital improvements).

The rule of thumb for borrowing is to match the life of the asset with the term of the loan.


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## soc (8 Jan 2007)

morpheus said:


> I got a loan of money to clear a car loan from my father this year, so we could get a mortgage.



Isn't there a *reason* why you had to clear your car loan in order to qualify for a mortgage?  Sounds like it was a condition to get your mortgage.  Bank's generally put your finances through 'stress tests' before giving you a mortgage... perhaps they saw your existing €8k car loan as something which could affect your mortgage repayments, should interest rates go up.  Now you're wanting to bump that loan figure up to €14k? 

I think if you can get a loan for €8k to pay your dad back... ONLY take the €8k.  If you need to figure out *how* to buy a new car given your current circumstances, then you definately can't afford to buy the car.

I refer to people in your circumstances as Veruca Salts (if you've ever watched 'Willy Wonka & The Chocolate Factory', you'll know exactly what I'm talking about).... _'I want it now!'_


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## tommo2 (17 Feb 2007)

ok,
The *reason* you had to pay off your car loan to get the mortgage is the banks calculate your borrowing power on the amount of disposable income you have. 
Roughly speaking they take your gross pay and subtract income tax, child payments, loans, basic bills, cost of living expenses etc and come up with a figure of sdisposable income which is the max you could save after paying all normal bills.
You can borrow a fixed multiplier of this. Obviously if you are repaying a loan, this can take up to 33%of your disposable income, even though the payments are only 5% of your gross earnings. 
Now do you see how small payments can affect your borrowing power?

However, you now have a home which is undoubtedly worth more than all you debts and then some.
The banks will throw money at you.
Dont go for 2 seperate loans. Although a car-loan may have a smaller rate, the personal loan of 8k will be quite expensive. The more you borrow on a single loan the best rate you will get.

The best deal you can get is to go to your mortgage provider and take out a loan for home improvements. Spread the cost over 3 to five years, no more. If you plan to change the car in 3 years , then go for a three year deal. Over 3 years at 14k the interest should be around 1000euro. 
This is at your homeloan rate and secured on your home.
Dont be tempted over 5 years, the interest in huge. You say you can manage to pay your father off and pay a loan, so you can definitely afford a three-year loan.
Remember, 3 years comes around quickly and before you know it you will be looking towards the end of the loan. Also, in 3 years time you may have kids or more kids etc and you will appreciate having no loan.

PS never go for a fixed rate loan. Or payment protection if you are in a stable job.


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## CCOVICH (19 Feb 2007)

tommo2 said:


> PS never go for a fixed rate loan.


 

The fixed rate loans available from Tesco are at some of the most competitive rates in the market and carries no penalties for early redemption.


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