We are in our 70s with two very old cars. We would like to buy a new car or a very good new used car. Could we borrow from the bank or the credit union with the loan secured by the deeds of our house?
We are mortgage free. We only have state pensions and no other income.
Mrs RC, Mayo
There comes a time when old cars start to cost too much. Either they are unreliable or they require regular and often expensive repairs. They are also, as a rule, less fuel efficient and therefore more expensive to operate.
So it makes sense for you to consider your options. And, as you note, given your current location, it should be entirely possible to survive with just one car.
The question for you is clearly finance. At your age and your source of income, you need to be sure that you can afford the investment. And given the value new cars lose in their first year or so, it might make more sense to go with a good used vehicle with a decent owner history.
But I certainly wouldn’t agree to put your house as collateral for the loan. Finally, the last thing you want is to find out that something is wrong and you find yourself in the unpleasant position of selling your house to cover the cost of paying off the loans.
To be fair, I don’t see banks or credit unions lending on that basis anyway. What they will want is to have the assurance that you have sufficient repayment capacity of your state retirement income to afford this purchase and the repayments it will involve.
The big question for you, then, is how much of your state pension are you currently spending on a weekly or monthly basis. Does this give the lender the assurance that you can afford to repay the amount you plan to borrow?
Otherwise, I think you will either have to lower your ambitions in terms of the novelty and cost of the car you might buy, or accept that you don’t have the wiggle room on your state pension income to allow yourself to anyway an updated vehicle.
My colleague Joanne Hunt published an article in the newspaper on Tuesday describing the financing options for buying a car and she notes that one of the great advantages of going to a credit union is that their loan is often with a life insurance policy. This is potentially a very positive characteristic for you because it means that if one of you were to die, the loan would be repaid automatically and would not constitute a financial burden on the remaining spouse.
The question here is whether you would qualify. The Irish League of Credit Unions website notes that the standard requirement is that you are not yet 70, which would clearly exclude both of you.
However, he adds that older borrowers should check with their credit union as the eligibility threshold can be raised to 80 or even your 85th birthday, an age that would cover more than your borrowing for that car if your credit union was agreement.
If all else fails and you really need that up-to-date vehicle, you can turn to specialist financial houses that offer cash against your home’s value.
There are two models here – equity release (also known as life loans) and residential reversion.
The former effectively allows you to borrow against the value of your home without any payment being made during your lifetime. However, interest does accumulate and you might find that the car ends up costing a significant chunk of the home’s value when the last of you two dies or leaves the home for good – a factor that could come into play if you need to. nursing. home care down the line.
Residential reversions are more specific in that, while the equity release is actually a mortgage on part of your house, residential reversions involve the lender buying a specific part of your house for a fixed loan amount. . The amount they offer will be significantly lower than the market rate.
Personally, I wouldn’t advocate any of these routes as long as there is an alternative – including approaching the kids, if you have any, for a repayable (or non-repayable) financial helping hand. However, if after exploring all of the other options there is no way to secure the necessary financing for that car, then that is an option.
The very important thing is that you fully understand the financial implications of such products.
And while children have no absolute right to inheritance and therefore have no say in such a decision, the experience of a previous generation of life loans is that the final cost and its impact Money over a person’s estate can be the source of a lot of anger in families.
At present, the only player in the Irish life loan market is a group called Spry Finance, also known as Seniors Money. There is also only one player in the residential reversion market, a company called Residential Reversion, also known as Home Plus, and it is not yet fully active in the market.
It’s a very expensive way to borrow, but if you can’t get a loan from the most common providers, it offers an option.
Basically, at your age, the main thing is peace of mind and the ability to enjoy your life without stress and, if possible, without discomfort. If you think it’s time to upgrade your cars, then you should consider all of the options and choose the one that best meets your needs. If I were you, I would start with the credit union.
Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged