Need Advice about Best Way to Buy Car

[moonblushtomato]

We're deliberating between financing a new car by increasing our mortgage (its currently £130K and we'd be increasing it by approx £20K) so our monthly repayments would go up to approx £800 (we think! haven't spoken to bank yet)

Or going with the car company's finance of paying £300 a month for 3 years then a "balloon" payment of £8000 (which we would probably need to get finance for too, at least for some of it)

Never having bought a new car before we don't know whats best. The idea of re-mortgaging scares me a bit as it obviously decreases the equity in the house tho DH thinks that in 20 years time £20k won't be such a huge amount.

Help! tia

To be honest, I'd be surprised if you could get a car loan through a top-up to / additional mortgage on your house. Generally these only get given for something that may add value to the house itself, rather than using the house as collateral for a (fast depreciating) non-house related purchase.
You mention looking for another 20k - that is roughly 15% of your current mortgage, so not a small chunk.

If your bank do offer this though you need to work out the overall cost of financing - yes, the interest rate will likely be lower than hire-purchase (which is what the car company's finance offer will be structured as), but given the length of the loan you would probably pay more in total.

For hire-purchase, you will not own the car until the final sum is paid. Also, if you think it will be difficult to save the 8-10k for the final downpayment, it might be worth checking whether your bank will give you a short-term loan (not hire-purchase) and looking in the second hand market for an older model of the car you want.

Maybe have a check on some of the forums in MoneySavingExpert too, just to see what's on the market at the moment.

Buying a depreciating asset like a car by using your house as security is not recommended. After 10 years the car will be worth next to nothing but you'll still be paying for it for another 10.... and in need of a new car. Car company finance is often over-priced so it's worth shopping around.

We've decided to go for the straightforward loan rather than re-mortgaging. I'm quite relieved at this