Most people who buy a house or car will need to rely on some form of lending, so you may be wondering ‘does car finance affect your mortgage price’? The answer to this is that if you apply for your mortgage after you have car finance in place, then yes it will. However if you already have a mortgage in place, your car finance will not affect it, in fact it will be your monthly mortgage payments that will affect your ability to get car finance.
Legal and ethical obligations
In order to work out if you can keep up with monthly payments, a bank, building society or finance company will examine your regular income and your outgoings. By law, lenders who offer finance for cars and banks and building societies who offer mortgages have a responsibility to ensure people can afford the money they borrow. This is because if you cannot keep up with your mortgage or car payments, the bank or finance company has the right to reclaim your house or car to cover the debt you are unable to pay.
Banks and finance companies will look at a variety of different factors to ascertain affordability and give them the clearest possible picture of your present financial situation. Your credit history will be examined, your employment status and income will be looked at and your regular committed expenses will be taken into account, including any debts that you’re paying back. With this information in their possession, they can work out how much you’re able to pay per month in mortgage repayments.
Car finance is a form of debt, and the bank or lender providing your mortgage will take the amount you pay each month into account when considering your affordability. Although many forms of debt can be paid off quickly, car finance deals are typically repaid over years - making them a long term financial commitment that must be taken into consideration.
Getting your timing right
Knowing that car finance can have an impact on your mortgage application, interest rate and the size of your monthly payments, it may be wise to consider your timing. Securing your mortgage before applying for car finance could make your mortgage application easier and more affordable.
Improving your credit history
After applying for a mortgage it’s a good idea to give your credit rating time to recover before applying for car finance. Lenders like to see that those applying have been present at their address for at least three to six months, so the longer you wait before applying for finance the greater your chances of success will be.
To improve the interest rate you can get on your mortgage or any form of finance, there are steps you can take to enhance your credit score.
Always ensure that you’re on the electoral register and make any outstanding debt repayments in full and on time wherever possible. Set up monthly direct debits for your utilities to show a responsible history of paying. You can also add funds to prepaid credit cards and utilise these cards when making purchases.
Support and advice
At Car.co.uk, we provide car buyers with all the answers to their concerns and questions on the subject of car finance. Getting the timing right when making applications for finance can ensure that you obtain the help you need.
If you have any questions on this subject, or any other topic related to car finance, don’t hesitate to get in touch. Our expert team will be happy to answer your questions and provide you with further information and advice.