Pay car finance of before purchasing house or not?

[Shawnlh]

Hi, I'm at a loss at the moment with what to do before we buy a house,

My fiancee has a smart fortwo with about 3k outstanding finance at 0% with 2 years remaining, we could easily pay this of from our house deposit but I'm not sure if this is a good plan or not. Half my brain is saying clear all debt before applying for mortgages but the other half is saying the bigger the deposit the better!

We will have around 50k house deposit between us, can anybody advise if it would be better to clear the finance or keep the extra 3k in the house deposit?

Any help on this would be appreciated

Many thanks,
Shawn
PS, this is my first post on hear after years of lurking!, so go easy on me :P

[gaz1234]

Yes

[Shawnlh]

gaz1234 said:

Yes

Your on the same track as me then not got a clue what to do

[Froomee]

The loan is interest free so I wouldn't worry about it and depending on your circumstances the £3k may help you borrow at a lower rate.

Assuming you can borrow enough to buy the house I see no benefit to paying it off other than it's one less debt to worry about

[technoluddite]

Depends.

Assuming you can get the mortgage you need while still making the car payments, then paying it off out of your deposit budget just means you're re-financing the car loan from 0% to 3-4% which seems silly. Also if the £3k off the deposit makes the difference between an LTV of say 76% vs. 75% you could be saddling your self with a higher rate on the whole mortage.

On the other hand, if you're marginal on the affordability for the size of mortgage you need then paying off the car in advance may help getting the mortgage in first place.

Maybe worth speaking to a broker?

[Shawnlh]

Thanks guys for your help, i think we will just keep the car finance as that is our only debt, then pay it of after we have purchased a house

I had heard that having finance can help when applying for a mortgage as long as you have paid on time and it shows your financially reliable,

Thanks again, i knew PH would be a good place to ask for advice