Common sense required!

Robi

Robi

Robi

Soldato
Joined
14 Apr 2007
Posts
3,477
Hello OcUK,

I'm in a bit of a tricky situation and being completely honest, I genuinely have no idea what to do. Simply put, I'm considering changing car for a number of reasons but I'm concerned it might not be the right time to do it.

A bit of background information before we get started; in the next 12-18 months I'm going to buy my first house. I'm 25 now, and will be 27 by the time I start searching. At the moment I have 10 months left on a personal loan which I used to purchase my current car. My credit score is healthy (never defaulted or missed any payments on any form of credit) and I'm in a well paid job with good security.

I currently drive an R53 Cooper, with 79k on the clock, which is worth circa 3k private at a best guess. My daily commute is 60 miles but involves the occasional 300-400 mile round trip to visit other sites. Selling this car will clear the balance on my personal loan with change left over.

In my probably flawed logic it appears I have two choices:

1. Stick with my current car and run it into the ground. It will be worth next to nothing in 18 months, likely cost me in repair bills and also in fuel as the economy is shoddy at best. After I buy a house, buy a new car.

2. Sell my current car and clear the loan. Take out a new loan for say 14-15k and buy something nearly new. Use for the next 12-18 months and then either sell & downgrade when I buy a house, or just retain. This car will be more economical.

With option 2, the aim is to keep the monthly repayments similar to what I'm paying at the moment. However, on the flip side if I retain my current car, in 10 months I'll have an extra wad of cash coming into my bank as the loan will be cleared.

Also worth mentioning that I haven't considered leasing or PCP, as these forms appear to be least flexible and most expensive methods of securing a car. I also get business mileage so additional journeys, e.g. 300-400 mile trips, are covered @ 45p/m.

So, stick or twist?

Thanks.
 
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I'd imagine depreciation on a 'nearly new' car of £14-15k would far out-weigh running costs on your existing car. Could always leave your loan as is and swap your existing car for a similar value more economical one? Depends if the fun of the Cooper S is worth the additional cost :)

ETA: Imo a new loan for a car that'd depreciate is a bad idea given your longer term plans :)
 
I'd go with 1 unless there's anything particularly major wrong with the car, lots of opportunity to spend the money on nice house things.
 
Depends what your affordability looks like with the loan added in whether you should even consider it.

If you're likely to borrow far less than the bank will offer at present then it's not going to be something to worry about, but if you're anywhere in the 85%+ bracket of theoretical maximum borrowing I'd be getting rid of any debt, buy the house then do what you like.

The depreciation on your current car will have ground to a halt, so in a couple of years time it's unlikely to be worth all that much less. It would certainly be far outweighed by depreciation on something relatively new and unless your engine grenades once every few years the repair bills won't offset it by much. Doesn't stop you wanting a new car (I have this affliction constantly) but there's no way to dress up the financials.
 
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Option 3: sell and buy a fabia vrs for 2k. Clear your loan and save money on those 20k miles PA. win win and have more £ for house without feeling you have downgraded
 
Option 3: sell your current car and pay off the loan. Dig in to the deposit you are building for your house and buy outright a medium-age car (say 4 years old) with a budget of £5,000. Kia, for instance, do 7-year warranties, so you'd still be covered. You should be able to get a decent Mondeo for that. Indeed, you could get a 2-year old Fiat 500 or Kia Picanto for that.
 
Not seeing much merit in option 2, you're taking out a large loan which I assume will still be there when you start applying for a mortgage and newer car will lose you a lot of money depreciating.

Either stick with your current motor or if you're feeling like it is going to go wrong soon replace it with a similarly priced boring Japanese/Korean piece. I've done some bad financial decisions over last few years so been driving 2004 Honda Jazz until I get myself back on that pogo stick. Similarly as others mentioned above spend a bit more on a good value brand car that you can run for a good few years.
 
Just be warned if your applying for a mortgage and currently have debt like a car loan, mortgage lenders get very nervous.

I had a debt on my current car when applying for a mortgage and it affected it quite badly, had to pay it off before I could continue with my application.
 
3) Keep the Mini and maintain it as normal. Running cars "into the ground" rarely works and is usually a bit of a fallacy because they tend to develop faults which stop the from working, which prevents you from "running it into the ground" because the first genuine fault that develops will probably render the car undriveable anyway, meaning you have to fix it or bin it there and then.
 
Depends really on whether your goal is to save money or to have a new car.

Option 1 will cost less.

Option 2 will get you a new car.
 
matthab said:
Just be warned if your applying for a mortgage and currently have debt like a car loan, mortgage lenders get very nervous.

I had a debt on my current car when applying for a mortgage and it affected it quite badly, had to pay it off before I could continue with my application.
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This depends entirely on your financial situation. My lender wasn't remotely concerned about a personal loan, they just reduce the amount they are prepared to lend and adjust the monthly affordability accordingly.

This is why i've mentioned the need to consider where the op sits in relative terms to what the lender will consider the maximum sum they will lend. If he is sitting with a lowish ltv and well outside of the theoretical maximum amount that will be approved it's not going to be an issue. If he's applying with a 5% deposit and to within a couple of % of the maxumum amount any loan will spell trouble.
 
Thank you for the help guys - much appreciated!

rodenal said:
This is why i've mentioned the need to consider where the op sits in relative terms to what the lender will consider the maximum sum they will lend. If he is sitting with a lowish ltv and well outside of the theoretical maximum amount that will be approved it's not going to be an issue. If he's applying with a 5% deposit and to within a couple of % of the maxumum amount any loan will spell trouble.
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I'm putting down a 10% deposit, however the additional saving from clearing my existing loan may allow me to put 15% - so that is something also worth considering.

In terms of the LTV ratio, when taking into account my deposit, it is likely to be within 80-85% of the maximum I can borrow.

rodenal said:
The depreciation on your current car will have ground to a halt, so in a couple of years time it's unlikely to be worth all that much less. It would certainly be far outweighed by depreciation on something relatively new and unless your engine grenades once every few years the repair bills won't offset it by much. Doesn't stop you wanting a new car (I have this affliction constantly) but there's no way to dress up the financials.
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I think this is the issue; I want a new car due to the economy saving and that it's a nice shiny new toy to play around with. However, I think financially it is probably not the most sensible option.

With regards to depreciation, it is likely be a 12/13 plate as opposed to a 14/15 - depreciation should be a lot smaller surely?
 
Haggisman said:
Depends really on whether your goal is to save money or to have a new car.

Option 1 will cost less.

Option 2 will get you a new car.
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I'm already saving 25% of my salary at the moment. This will enable me to hit my goal of a 10% house deposit + additional money for legal fees, stamp duty and furnishing the place by Aug/Sept 16.
 
Judging by the information/replies, it appears that sticking with my current car until I buy a house seems like the favourable option. I can save the additional money in 10 months and put that either towards the house or deposit on a car when I buy the house. Unless someone has a financially sound option which involves a nice new shiny car without impacting the house purchase?

Like I said before, I'm wary that my current car has woeful fuel economy, will drop significantly in value over the next 18 months and might start churching out big bills. However, the potential impact to my mortgage of taking out a new loan and chance of falling into negative equity if I choose to sell in 18 months as opposed to retaining, appears to be far more risky than sticking with my current car!

:)
 
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A Cooper can't be that bad on economy surely? Especially not on what I can only assume is a flowing A road / motorway style commute.

In the next 18 months a "new" car costing 10-15k is going to drop significantly more in value than your Mini ever will.
 
Robi said:
Like I said before, I'm wary that my current car has woeful fuel economy, will drop significantly in value over the next 18 months and might start churching out big bills.
:)
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You'd have to have a lead foot and be very unlucky to generate £14-15k worth of woeful fuel economy, depreciation and bills. ;)
 
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