I'm trying to work out whether taking out a loan (3k-5k) to buy a car
a month or two ahead of applying for a mortgage is a bad idea.

Other things being equal, how will a lender treat an outstanding
(unsecured) loan? Will they reduce the loan amount? Will they ignore
it?

"zkat" wrote in message
...
I'm trying to work out whether taking out a loan (3k-5k) to buy a car
a month or two ahead of applying for a mortgage is a bad idea.

Other things being equal, how will a lender treat an outstanding
(unsecured) loan? Will they reduce the loan amount? Will they ignore
it?

Generally, taking out a loan can be beneficial to your credit rating
provided you make sure you don't miss any payments. It shows that you behave
yourself when lent to, and lenders like this. However, a couple of months
does not give you much of a track record - unless you've had loans before.

It will also depend on the size of the loan compared to your earnings, and
whether you've got any other loans as well - credit cards, for example.

I doubt if your new loan will make much difference to the lender's thinking,
but then all has changed over the last few months, so who knows?

Rob Graham

I doubt if your new loan will make much difference to the lender's thinking,
but then all has changed over the last few months, so who knows?

Rob Graham

Cool. Good point about track record because I'm actually not a big
borrower, more the the type that pays everything off on time. My only
borrowings are two mortgages (different properties), one of which is
to be replaced with a bigger mortgage. I need/want to maximise the
amount that I will be able to borrow this time round. Seems like a
toss-up between spending 4k from my own pocket and risking it being
taken off the mortgage that I eventually apply for.
My worry is that a lender might reduce the mortgage borrowing after
applying a factor 1 to an existing outstanding loan amount, e.g. if I
have a 4k loan, they reduce the borrowing amount by more than 4k.

And, yes, buying a car is a necessity at this time.

zkat wrote:


I doubt if your new loan will make much difference to the lender's
thinking, but then all has changed over the last few months, so who
knows?

Rob Graham

Cool. Good point about track record because I'm actually not a big
borrower, more the the type that pays everything off on time. My only
borrowings are two mortgages (different properties), one of which is
to be replaced with a bigger mortgage. I need/want to maximise the
amount that I will be able to borrow this time round. Seems like a
toss-up between spending 4k from my own pocket and risking it being
taken off the mortgage that I eventually apply for.
My worry is that a lender might reduce the mortgage borrowing after
applying a factor 1 to an existing outstanding loan amount, e.g. if I
have a 4k loan, they reduce the borrowing amount by more than 4k.

And, yes, buying a car is a necessity at this time.

If you've got mortgages already, then that is enough of a track record for
them. Two months of car loan repayments isn't going to make any difference
at all in that department.

It depends on the lender, but some calculate on an affordability basis, and
if you have a car loan, they will deduct the monthly repayments on that
from what they assess you as being able to afford on your monthly mortgage
repayments. A £4k car loan will have higher monthly repayments than a £4k
mortgage loan because you are paying off over a shorter period, so that
could mean more than £4k taken off your loan. Lenders who use an income
multiples basis will probably ignore the car loan.

zkat wrote:

I'm trying to work out whether taking out a loan (3k-5k) to buy a car
a month or two ahead of applying for a mortgage is a bad idea.

Other things being equal, how will a lender treat an outstanding
(unsecured) loan? Will they reduce the loan amount? Will they ignore
it?

I think what they generally do is deduct (12 times) your monthly loan
repayments from your annual income before the income multiple is applied
to determine the maximum they will lend you.

If you want to maximise what they'll lend you, it would be a good idea
to postpone the car purchase until after your mortgage is approved.

Or buy an old banger intead.

Much obliged for the opinions, gents. I went for the middle ground
(RR) and bought not quite an old banger, but something that didn't
need a loan taking out for.