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18 Oct 19, 11:31 AM |
#1
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Imagineer
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Car finance
An urgent question on behalf of my nephew and his fiancée.
They are saving for a mortgage, target to buy their house in 12-15 months time. They each have a car on finance but have worked out it would be cheaper to get rid of their cars, repay their finance agreements and start again with one car with finance. My question is - would repaying finance deals and then getting a NEW finance deal affect their credit scoring ? They both have good scoring and don’t want to jeopardise getting a mortgage. Hope this makes sense ! Linda x |
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18 Oct 19, 11:38 AM |
#2
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Imagineer
Join Date: May 03
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Well, it would affect it, yes, as two finance arrangements will be cleared, at least one search performed for the new arrangement and that arrangement commenced.
There's no reason why that would be an adverse impact that reduces their ability to get a mortgage, however. The bigger issue, really, is affordability. If the new loan has a smaller monthly repayment than the sum of the two previous ones, then this is likely to work in their favour. |
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18 Oct 19, 12:21 PM |
#3
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Imagineer
Join Date: Dec 10
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Was about to write something similar. I would just add if they are looking to borrow at the limits of the banks affordability criteria it might actually be a good idea to try and stop the 2 current cars on finance a few months before they apply for the mortgage, use an old banger or public transport for 12 months while looking and then after they have bought a place then get new car. They will get a higher loan amount available this way. Obviously this carries risks and they have to be comfortable they can still pay all those bills, but it is an option. |
18 Oct 19, 02:05 PM |
#4
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Imagineer
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An old colleague of mine struggled with the affordability criteria due to having one car on finance and no other debts - her and her OH would have been able to pay the mortgage and live fairly comfortably (so she told me anyway) but they are so strict these days. I would think the above advice is probably apt - if they can live without a car whilst the property purchase goes though (or beg/borrow/rent one when required) then they’d likely get a more favourable mortgage term as they’d be better off on the affordability criteria.
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18 Oct 19, 08:48 PM |
#5
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Thread Starter
Imagineer
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Thanks everyone. Managing without a car isn’t an option. They are both police officers in the Met working a lot of nights and live 30 miles from their base.
I’ve passed on everyone’s comments, thanks again. |
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18 Oct 19, 09:01 PM |
#6
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Imagineer
Join Date: Mar 08
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Not sure if it still works the same, but they used to deduct from what you could borrow as a mortgage from what you owed totally on finance/credit card etc or other things for mortgage purposes.
So one new car could have more outstanding finance than two older ones together, depending on the balance outstanding. Not sure if it still works the same though now. |
18 Oct 19, 09:07 PM |
#7
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Imagineer
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Do they both need brand new cars though if they are saving for a mortgage?
There are plenty of reliable second hand cars that will save them hundreds a month. Would also help with the mortgage application not having big outgoings. I know it’s not yours: but just running through options
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Mitch xx |
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18 Oct 19, 09:30 PM |
#8
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Imagineer
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Can they manage with one car? If they’re on different shifts, as presumably they are at times, could that not be a problem?
We’ve tried to go down to one car but it just didn’t work out.
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18 Oct 19, 09:54 PM |
#9
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Imagineer
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Credit score likely a +ve effect, but mortgage lenders will be more worried about the impact on affordability.
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Sarge |
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18 Oct 19, 09:59 PM |
#10
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Imagineer
Join Date: Dec 10
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It has more of an impact now i would argue. They start off with your net income from your wageslips. Then deduct all your fixed outgoings - such as a car loan. Then deduct amounts for variable out goings. Leaving a "disposable income". They may then leave a bit of a buffer and what is left is then worked back to come up with a loan amount that they will lend.
So if you have say a £300 car loan, it doesn't reduce the loan amount by £300 or the value of the loan. It is instead the corresponding mortgage amount that equates to a £300 monthly payment. So it depends on the interest rate, but that might take something like £50k off the mortgage amount. |
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