How will buying a car on finance affect your chances of getting a mortgage in 2020
So… you’d like to purchase a car using finance but you’re unsure of how it will impact your mortgage application. Let us explain this common dilemma and get you on your way to a new car. Worry-free.
What is the link between my car finance and a mortgage?
Car finance in its simplest form is a type of loan, and therefore it is a type of debt. Debt is one of the key things which lenders will look at when you apply for a mortgage because it affects your credit score and is an indicator of how you deal with borrowing money. The bigger debt you have against your car, the lower the amount you will receive for a mortgage.
How can car finance affect my credit score?
Once you have agreed a suitable repayment schedule, the way that you honour this will affect your credit score. Late payments will damage your score and timely payments will increase it. Essentially, your credit score is a reflection of your responsibility with borrowed money so to create a good score you need to stick to your repayment agreement.
How else does car finance affect my mortgage application?
A mortgage lender needs to gain a good understanding of your finances in order to determine how much they can lend you and how much they think you can afford to repay per month. To do this your bank statements, regular outgoings and any standing orders will be scrutinised which includes your car finance repayments.
If you are spending £250 a month to pay for your car, you have £250 less to pay back on your mortgage – or that’s how mortgage lenders will view things. Calculate your car finance
How can I increase my chances?
Stick to your repayment schedule diligently – missing payments will affect your credit score for years to come, even if your loan has been paid off
If the timing coincides well, wait until you have finished your car finance deal to make your mortgage application – this means there is one less thing to go ‘against’ your financial circumstances
Pay the remaining amount in full – if this is an option for you it could greatly benefit your application and credit score
Tailor Made Car Finance
Unlike many other loan companies, Tailor Made Car Finance will perform a “soft credit check” prior to your formal loan application. It will not affect your credit score as nothing will be updated on the central credit reference databases but will still check your credit history in order to help you apply to the most appropriate car finance lenders. We actually cater for individuals with Poor or Bad Credit scores
As well as saving you time and protecting your credit history, this will also benefit any potential mortgage applications because of the lack of official loan application.