How would a car loan affect my chances of approval for mortgage?

B

buckfast

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Hi All,

I have been saving with my wife for a couple of years for a house and we have over the 20% deposit saved up for the price range of houses we are looking for. Unfortunately, my car has just given up the ghost, and as i have a long commute to work, it's an absolute necessity that I get another one.

My question is, all else considered, if I take out a 20k car loan now, how would it generally affect my chances of getting a mortgage?

I understand that it's a secured loan, but just wonder what is the affect and what type of loan might work best (hire purchase from a car dealer or credit union car loan?)

Many thanks.
 
It affects the amount you can borrow by reducing the amount available for loan repayments. Banks set a ceiling to the amount of monthly disposable income that can be used for loan repayments, existing loans eat into that amount leaving you less for paying a mortgage. Type of loan etc don't really matter to the bank, it's the monthly repayments they will be taking into account. A decent sized car loan like that could make a good dent in the amount you can borrow but it all depends of course on your incomes etc.

Have a look at some of the bank online mortgage calculators and put in the figures with and without the car loan and see how it affects you.
 
Thanks for that, so there is no big secret to it then. 54K and 50K salaries, wife is public sector, I am private sector. Savings are 90k, looking at houses c.350k - Currently no loans from either of us
 
Good financial advice would suggest that you should use your cash to buy a car, rather than taking out a car loan.

However, the Central Bank insists that you must have a 20% deposit, assuming you are not first time buyers. The Central Bank ignores your other borrowings.

So with €90k, you have 20% of €450k

If you use €20k to buy a car, you will have €70k or 20% of €350k.

So it's best to borrow the money. See if it's possible to get a loan which is flexible i.e. you can pay it off early without penalty. Extend your mortgage as long as possible and pay down the more expensive car loan.

Brendan
 
It could be argued that you would be as well to put 10k or so of your savings towards the new car rather than borrow the lot. At the moment let's say you borrow and then pay down your mortgage by the same amount as the extra 10k would have cost you as a car loan. Then you will effectively be financing a car with a mortgage rate.
 
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