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Car finance ›
Does car finance affect your mortgage?
Updated: Thursday, 16 November 2023
You might wonder how various factors, like car finance, can affect your ability to secure a mortgage in the UK. Buying a car on finance is a common practice, but does it have any impact on your mortgage application?
In this guide, we explore the relationship between car finance and mortgage approvals, credit scores, and affordability checks.
Does car finance affect mortgage eligibility?
While car finance doesn’t directly affect your mortgage, it can indirectly influence your application and eligibility in several ways. The two main things it affects are:
You might wonder how various factors, like car finance, can affect your ability to secure a mortgage in the UK. Buying a car on finance is a common practice, but does it have any impact on your mortgage application?
In this guide, we explore the relationship between car finance and mortgage approvals, credit scores, and affordability checks.
Does car finance affect mortgage eligibility?
While car finance doesn’t directly affect your mortgage, it can indirectly influence your application and eligibility in several ways. The two main things it affects are:
Your credit file
Mortgage lenders look at lots of different factors to understand your eligibility. Your credit file is a record of your financial history, and helps them understand how much debt you have and how well you manage it.
A lower credit score, resulting from multiple hard searches on your credit file or missed payments on things such as a car finance agreement, can impact your eligibility for a mortgage and the interest rates lenders may offer.
Low credit ratings can indicate to mortgage providers that you are a high-risk borrower, meaning they may feel less comfortable lending you as much compared to those with good or excellent credit ratings.
Your affordability
A mortgage lender will conduct an affordability check to ensure that you can afford the monthly payments on a mortgage. These assessments consider various factors, including your income, existing debts, essential living expenses, and any credit or finance you might have.
If you have car finance, you will be making monthly payments which will affect how much spare money you have. Car finance agreements typically last several years, so if you are in a finance agreement, it might affect how much you can borrow on a mortgage, because you might not have as much disposable income left to pay it back.
Your credit file
Mortgage lenders look at lots of different factors to understand your eligibility. Your credit file is a record of your financial history, and helps them understand how much debt you have and how well you manage it.
A lower credit score, resulting from multiple hard searches on your credit file or missed payments on things such as a car finance agreement, can impact your eligibility for a mortgage and the interest rates lenders may offer.
Low credit ratings can indicate to mortgage providers that you are a high-risk borrower, meaning they may feel less comfortable lending you as much compared to those with good or excellent credit ratings.
Your affordability
A mortgage lender will conduct an affordability check to ensure that you can afford the monthly payments on a mortgage. These assessments consider various factors, including your income, existing debts, essential living expenses, and any credit or finance you might have.
If you have car finance, you will be making monthly payments which will affect how much spare money you have. Car finance agreements typically last several years, so if you are in a finance agreement, it might affect how much you can borrow on a mortgage, because you might not have as much disposable income left to pay it back.
Will car finance stop me from getting a mortgage?
Having car finance doesn’t automatically disqualify you from getting a mortgage. It can impact your affordability assessment but doesn’t necessarily mean you won’t be approved for a mortgage.
Mortgage lenders assess your ability to make mortgage payments based on your income, expenses, and existing debts. Car finance payments are a monthly expense which reduce the amount of money you have left over for mortgage payments.
Many factors come into play, and lenders consider the overall picture of your financial situation when reviewing your application.
How does car finance affect your credit score?
Having a car on finance can affect your credit score, which, in turn, could influence the decision of your mortgage application. When you apply for car finance, the lender may use a hard credit check. This can result in a temporary drop in your credit score.
Not all car finance lenders use a hard credit check. For example, we use a soft check at the point of application. This doesn’t affect your credit score and isn’t visible on your credit file.
However, not all lenders do the same, so make sure you do your research before making an application. Also, if you make your car finance payments on time and manage your credit responsibly, it can positively affect your credit rating.
Read more about how car finance can build your credit score.
Does car finance affect affordability checks?
Yes, car finance affects affordability checks conducted by mortgage lenders. Affordability assessments are a crucial part of the mortgage application process in the UK.
Lenders use these assessments to determine whether you can afford mortgage payments based on your financial circumstances.
When you have an existing car finance agreement, the monthly payments are factored into these affordability assessments. Depending on the amount you’ve agreed to pay each month, it will reduce the amount you are eligible to borrow for your mortgage.
Getting a mortgage if you have a car finance agreement
The main link between mortgages and car finance agreements lies in the affordability check. If you are already committed to paying a set monthly amount in car finance repayments, you will have less disposable income spare for payments on a mortgage.
There are some things you can do which might help improve your credit file, which in turn can help with your chances of getting a mortgage.
Will car finance stop me from getting a mortgage?
Having car finance doesn’t automatically disqualify you from getting a mortgage. It can impact your affordability assessment but doesn’t necessarily mean you won’t be approved for a mortgage.
Mortgage lenders assess your ability to make mortgage payments based on your income, expenses, and existing debts. Car finance payments are a monthly expense which reduce the amount of money you have left over for mortgage payments.
Many factors come into play, and lenders consider the overall picture of your financial situation when reviewing your application.
How does car finance affect your credit score?
Having a car on finance can affect your credit score, which, in turn, could influence the decision of your mortgage application. When you apply for car finance, the lender may use a hard credit check. This can result in a temporary drop in your credit score.
Not all car finance lenders use a hard credit check. For example, we use a soft check at the point of application. This doesn’t affect your credit score and isn’t visible on your credit file.
However, not all lenders do the same, so make sure you do your research before making an application. Also, if you make your car finance payments on time and manage your credit responsibly, it can positively affect your credit rating.
Read more about how car finance can build your credit score.
Does car finance affect affordability checks?
Yes, car finance affects affordability checks conducted by mortgage lenders. Affordability assessments are a crucial part of the mortgage application process in the UK.
Lenders use these assessments to determine whether you can afford mortgage payments based on your financial circumstances.
When you have an existing car finance agreement, the monthly payments are factored into these affordability assessments. Depending on the amount you’ve agreed to pay each month, it will reduce the amount you are eligible to borrow for your mortgage.
Getting a mortgage if you have a car finance agreement
The main link between mortgages and car finance agreements lies in the affordability check. If you are already committed to paying a set monthly amount in car finance repayments, you will have less disposable income spare for payments on a mortgage.
There are some things you can do which might help improve your credit file, which in turn can help with your chances of getting a mortgage.
Consider opting for a cheaper car
If your finance payments are a large expense, you might decide to settle your agreement early and trade your car in for one with lower monthly payments. This would mean you have more money spare each month, which can help in your affordability assessment.
Maintain a healthy credit file
Continue to make all your debt payments on time, including those for your car finance agreement. Late or missed payments can significantly impact your credit score, which in turn can make it harder to get a mortgage.
Increase your deposit on your mortgage
You might consider putting down a larger deposit on your home. A higher deposit reduces the loan-to-value ratio (LTV) and demonstrates your commitment and financial stability to lenders. This can offset the impact of your car finance agreement on your mortgage application.
Consider opting for a cheaper car
If your finance payments are a large expense, you might decide to settle your agreement early and trade your car in for one with lower monthly payments. This would mean you have more money spare each month, which can help in your affordability assessment.
Maintain a healthy credit file
Continue to make all your debt payments on time, including those for your car finance agreement. Late or missed payments can significantly impact your credit score, which in turn can make it harder to get a mortgage.
Increase your deposit on your mortgage
You might consider putting down a larger deposit on your home. A higher deposit reduces the loan-to-value ratio (LTV) and demonstrates your commitment and financial stability to lenders. This can offset the impact of your car finance agreement on your mortgage application.
Get your next car with Moneybarn
We specialise in car finance for people with bad credit, helping people up and down the UK onto a better road ahead. Our flexible Conditional Sale agreements have helped thousands of people get the finance they need, even if they’ve been refused car finance by other lenders.
Explore what your agreement could look like using our car finance calculator, and when you’re ready, get a quote online in less than 5 minutes.
Representative 30.7% APR.
FAQs about how car finance affects your mortgage
Can I apply for car finance and a mortgage at the same time?
Yes, you can apply for both car finance and a mortgage simultaneously. However, it is likely that your car finance will affect your eligibility for a mortgage. This is because a hard credit check will be done, and also because you will have less money spare each month due to the monthly payments you’ll have to make.
Should I apply for car finance before or after a mortgage?
There is no right or wrong answer to the question of whether you should apply for car finance or a mortgage first, as the best approach depends on your personal circumstances.
You can take steps to protect your credit score by avoiding applying for both a mortgage and car finance at the same time or in quick succession. Repeated hard searches on your credit file can negatively affect your credit score, which could make it harder to secure either type of loan.
Get your next car with Moneybarn
We specialise in car finance for people with bad credit, helping people up and down the UK onto a better road ahead. Our flexible Conditional Sale agreements have helped thousands of people get the finance they need, even if they’ve been refused car finance by other lenders.
Explore what your agreement could look like using our car finance calculator, and when you’re ready, get a quote online in less than 5 minutes.
Representative 30.7% APR.
FAQs about how car finance affects your mortgage
Can I apply for car finance and a mortgage at the same time?
Yes, you can apply for both car finance and a mortgage simultaneously. However, it is likely that your car finance will affect your eligibility for a mortgage. This is because a hard credit check will be done, and also because you will have less money spare each month due to the monthly payments you’ll have to make.
Should I apply for car finance before or after a mortgage?
There is no right or wrong answer to the question of whether you should apply for car finance or a mortgage first, as the best approach depends on your personal circumstances.
You can take steps to protect your credit score by avoiding applying for both a mortgage and car finance at the same time or in quick succession. Repeated hard searches on your credit file can negatively affect your credit score, which could make it harder to secure either type of loan.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
