Buying a car while saving for a house: spend savings or borrow?

[Lynnie]

Hey folks,


I am hoping to buy a car in the near future and am intending to spend less than €7k on it [incl. insurance]. I currently have savings amounting to c. €4,500 [RaboDirect] and an SSIA which is due for maturation Jul-06 and is due to yield about €5,500 once the relevant deductions have been made.


However, my partner and I are intending to buy a house in the next year so I'm reluctant to use my savings for the car as it has taken me about 5 years to get them to where they're at and I feel we'll need them [and a whole lot more besides!] worse to cover the costs associated with buying a home.


The CU in work have quoted me 7.2% APR on a €6k loan, the stipulation seems to be that I would have about €500 in savings with them and save €4 per month for the duration of the loan.


Am I just being foolish to be thinking about taking out a loan for the full amount rather than the shortfall between my savings and the car price?


Any advice gratefully received

 

[irishpancake]

Most likely, any lender would probably stipulate that you must clear outstanding loans to borrow up to the max. Depending on the size/percentage mortgage you require, this could have a big effect.

So, you may end up having to clear the loan anyway.

That said, not all CU's are affiliated to the ICB, but probably cop on to repayments when you send Bank Statements, that is unless you have a payroll deduction. (However, UB copped these on my Payslips when i submitted these with the Mortgage App.).

BTW, 7.2% looks like a very good rate, on the amount you want to finance, in fact, it could be a market leader .

best of look, whichever way you go.

 

[conor_mc]

On the one hand you'll need savings in order to buy the house obviously. But on the other hand, an outstanding loan will effect how much of a mortgage the bank will offer you so you need to take this into consideration also.

As a rough guide, the bank will want to see that the monthly cost of servicing your debt (i.e both of your car loans + mortgage repayments) is less than about 30-40% of your joint net income.

So the answer really depends on what your joint incomes are likely to be when you apply for a mortgage.

On a side note, your CU loan looks like good value. If you were to make these repayments in cash, then it'd be up to you to declare this outgoing to your mortgage provider as the repayments wouldn't show up on your bank statements and CU loans aren't usually listed in an ICB check.