Loan advise.

Hello everyone, I've a little dillema and was wondering if people on board could help with some advise. I need to purchase a car in coming months (don't ask reasons, it's a necessity). I'm debating wheter in doing so shall I get a loan for the car, insurance & also clear credit card (3000) & small personal loan (1000). My dillema is shall I apply for a loan over 3 years, payments then work out at about 270-330 permonth or re-mortgage on my house for 8000 - 9000. My house is worth approx 210,000 with balance of 163,000, repayments 765 per month, following re-mortgage , i think re-payments following re-mortage would work out at about 810-820 mark.

I need a loan as I've little savings - all tied up with SSIA.. roll on next 3 years..

Any thoughts / advise welcome.

hi wonderinglady,

I'm no expert on this, but from what I've read previously on this board, people don't advise that you "top up" your mortgage to buy a car, go on holiday etc. The reason for this is that you're spreading out the term of the mortgage.

If you do borrow for the insurance, are you putting some money aside each week / month to pay for next year's insurance?

Remember there's also the following costs involved with a car:
1. Car tax.
2. Weekly running costs.
3. Annual service.
so while you'll probably get the money to put the car "on the road" there's also these on-going costs to keep it on the road.

It makes little financial sense to be putting money into your SSIA while holding outstanding credit card bills at 18%-20% pa.

Thanks for response Square & Rainyday.

I have budgeted for the 'extras' that go with running a car, I'm also planning to stick 50-100 a month into a saving account that will form the bulk of my insurance next year.

Regarding, SSIA Rainyday, I totally agree with your point, thus getting a loan to clear credit card debt... where I can honestly say I've learned some lessons !!

Are you continueing to put further contributions into your SSIA? In financial terms, you would be better off redirecting such contributions towards your loan repayments.

Yes, I plan to keep up my SSIA repayments.

With a return of 25% on SSIA as opposed to loan repayments of 9%, surely it makes better sense to keep SSIA and pay loan over 2-3 years ??

Please note that I'll also have no credit card debt as it will be condensed into my loan.

It is misleading to think of it as 25% - You have to leave your money in for a further 2-3 years (for which you will get maybe 3%-4% return), so the average return over the 2-3 years will be somewhere around 8%-10%. So if you are paying back a 9% loan, you might be better off continueing your SSIA contributions. But it is a close call.

Remember the SSIA Revenue form that you signed when you opened the account? You committed to funding the account without recourse to borrowing (to paraphrase it)!

The "return" on each contribution may be 25% (I prefer to simply think of this as a refund of tax that I've previously paid however and consider only any further interest or growth as the real return) but annualised this is nearer 9% CAR.

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Don't forget that any interest/growth earned on personal contributions and the Government top-up is subject to a 23% exit tax.

The SSIA scheme is generally a no brainer but in some cases it may not be so clear cut. Yours could be one of these cases. Crunch the numbers carefully and accurately before doing anything rash.