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Car finance ›
What is an affordability check?
Updated: Tuesday, 30 January 2024
At Moneybarn, we put customer affordability front and centre. Our finance agreements are designed to suit your personal circumstances, but in order to offer this we must do an affordability check to assess your application.
In this guide, we explore what affordability checks are, what they cover, how they work, and what they might mean in practice when applying for car finance.
What are affordability checks?
Responsible lending is one of the main focuses of the Financial Conduct Authority (FCA) – the independent body that monitors and regulates financial institutions in the UK. It works to hold banks and finance companies accountable for the products and services they provide, protecting the best interests of consumers nationwide.
Affordability checks are one of the cornerstones of responsible lending. Whether for a new car, television, sofa, mortgage, or otherwise, lenders must carry out specific assessments before they can accept your credit application.
Affordability checks are the assessments used to determine your ability to repay any money you borrow. Typically, you’ll hear about affordability checks in terms of mortgage applications, but they’re also an essential part of car finance applications.
What do affordability assessments check?
Different finance providers make lending decisions based on their own criteria, so there are no hard and fast rules as to exactly what an affordability check will assess. Every lender has different rules and criteria in place, including for assessing your affordability, but there are three factors that lenders will check.
Monthly income
Lenders will check your monthly income (or combined monthly income if you’re applying for a loan or joint car finance with a partner or spouse). This can involve submitting recent payslips or a tax return, so they can verify your income.
Lenders may ask for proof of the following sources of income:
- Your salary: you must be able to show your pre-tax earnings and your monthly take-home pay. You may also need to provide proof of your employment status, including details of whether you are self-employed or working part-time. If you’re a full-time employee applying for vehicle finance, you’ll usually need to provide payslips or bank statements. If you’re self-employed, you might need to provide additional documents to prove your income, such as a tax return.
- Additional income: if you have a second job or do freelance work to supplement your primary source of income, you’ll usually need to disclose this during your affordability check. Also, lenders will ask you to provide details of any pension payouts or income support you receive (i.e. Universal Credit, Child Benefit, or child maintenance payments).
Monthly expenses
Lenders need to know how much you have going out, too. The balance between your income and expenses will help them decide whether you have the disposable income to make repayments on time and in full.
To do this, they might ask for recent bank statements, so they can understand what kind of monthly expenses you have, and how much you spend.
Examples of monthly expenses include:
- Mortgage repayments or rent payments
- Council tax and household bills for gas, electricity, and water
- Regular household expenses (i.e. insurance policies, food shopping, transport costs, etc)
- Childcare costs or school fees
- Mobile phone bills or contracts
- Entertainment subscription fees
- Any maintenance payments you make to an ex-spouse or partner
- Other debts or loans that you repay monthly
Having the relevant documents ready before you make a credit application may help avoid any unnecessary delays. For more information, check out our guide that explains what you need when applying for car finance.
Your credit file
Improving your credit score can help you pass an affordability check by proving to the lender that you’re able to borrow responsibly and manage credit effectively.
It’s not the only thing that a lender will check. They might look at your credit file to see how you’ve managed credit in the past. Your credit score is a three-digit number that reflects how well you can manage credit, and there are different brackets that can help you understand if you have a good credit score.
Ways to boost your credit score include:
- Only borrowing what you can afford to repay
- Meeting payment schedules on time (i.e. with your mortgage, household bills, and finance purchases)
- Avoiding falling into debt on any credit cards
- Being on the electoral register at your current address
- Not being close or going over your credit limit
- Keeping credit accounts open for long periods
How does an affordability check work?
Banks, building societies, and other finance providers will carry out affordability assessments before approving any credit applications.
Some lenders may conduct affordability assessments in the background without making you aware or giving you time to prepare any supporting documentation.
We make an affordability check on every application. If you are approved in principle, it means we need additional information to help with our affordability check. If that’s the case, an expert from our team will be in touch to guide you through the process.
If you’ve made a car finance application and are self-employed, or are claiming benefits, then we might need additional documents to confirm your income.
If you’re looking to finance a car, using an online car finance calculator can give you an idea of what your finance agreement might look like. While calculators are useful tools, remember that they can’t tell you for certain whether your application will be approved or how much you could borrow. A lender must do an affordability check before they can offer you credit.
Learn more about our application process, how it works, and what to expect.
Why are affordability checks important?
Lenders do an affordability assessment on any loan application you make to ensure you can afford to make payments in full and on time.
Without an affordability check, you could potentially borrow more than you’re able to repay. In some instances, this may mean you end up in debt, making it harder to get credit in the future.
Does an affordability check impact your credit score?
No, an affordability check forms part of what’s called a ‘soft search’ on your credit file, meaning it won’t impact your credit score. We use a soft search, which doesn’t affect your credit score and isn’t visible to other lenders.
Learn more about the differences between hard and soft credit checks.
What are the differences between affordability and creditworthiness?
Affordability and creditworthiness are essentially two sides of the same coin.
Lenders determine your affordability by balancing your income against your expenses to check whether you can afford a finance agreement. On the flip side, your creditworthiness refers to how likely you are to repay the money you borrow.
When making a lending decision, finance companies will take both affordability and creditworthiness into account.
Making a finance application with Moneybarn
We do affordability checks on all finance applications we receive to ensure we never agree to lend more than what is affordable for you. Whether you are looking to buy a new car, finance a van, or get motorbike finance, we only offer sustainable and affordable agreements.
To find out how much you may be able to borrow, use our online car finance calculator. Then, when you’re ready, get a quote today.
Representative 30.7% APR.
FAQs about affordability checks
What factors impact my ability to borrow money?
Your credit history
Lenders want to know that you’ll be able to repay your loan in full and on time, so look at your borrowing history for evidence of this.
If you have a history of missed or late payments or have regularly exceeded your credit limit on any credit cards, you may be seen as a higher risk to lend to. This means you might have trouble getting approved for credit, or are offered higher interest rates.
Your credit score
While having a lower credit score or limited credit history won’t stop you from borrowing money, it may mean you need to apply to specialist lenders. Additionally, the interest rates associated with any finance agreements will likely be higher.
Read our guide to learn about how to boost your credit score.
Existing loans and outstanding balances
Any outstanding debts on credit accounts, store cards, and personal loans may mean you find it harder to borrow money.
What happens if you fail an affordability check?
If a lender doesn’t think you’re able to afford the repayments on a loan, they can’t responsibly accept your application. This is to help prevent borrowers from ending up in financial difficulties and not being able to keep up with other regular payments.
If you fail an affordability check, lenders may offer you a smaller loan with more manageable repayment terms, but this isn’t guaranteed.
You can re-apply for finance if a change in your financial circumstances means your affordability improves. If your income increases or your monthly spending decreases, your ability to afford loan repayments without falling into debt can improve.
At Moneybarn, we put customer affordability front and centre. Our finance agreements are designed to suit your personal circumstances, but in order to offer this we must do an affordability check to assess your application.
In this guide, we explore what affordability checks are, what they cover, how they work, and what they might mean in practice when applying for car finance.
What are affordability checks?
Responsible lending is one of the main focuses of the Financial Conduct Authority (FCA) – the independent body that monitors and regulates financial institutions in the UK. It works to hold banks and finance companies accountable for the products and services they provide, protecting the best interests of consumers nationwide.
Affordability checks are one of the cornerstones of responsible lending. Whether for a new car, television, sofa, mortgage, or otherwise, lenders must carry out specific assessments before they can accept your credit application.
Affordability checks are the assessments used to determine your ability to repay any money you borrow. Typically, you’ll hear about affordability checks in terms of mortgage applications, but they’re also an essential part of car finance applications.
What do affordability assessments check?
Different finance providers make lending decisions based on their own criteria, so there are no hard and fast rules as to exactly what an affordability check will assess. Every lender has different rules and criteria in place, including for assessing your affordability, but there are three factors that lenders will check.
Monthly income
Lenders will check your monthly income (or combined monthly income if you’re applying for a loan or joint car finance with a partner or spouse). This can involve submitting recent payslips or a tax return, so they can verify your income.
Lenders may ask for proof of the following sources of income:
- Your salary: you must be able to show your pre-tax earnings and your monthly take-home pay. You may also need to provide proof of your employment status, including details of whether you are self-employed or working part-time. If you’re a full-time employee applying for vehicle finance, you’ll usually need to provide payslips or bank statements. If you’re self-employed, you might need to provide additional documents to prove your income, such as a tax return.
- Additional income: if you have a second job or do freelance work to supplement your primary source of income, you’ll usually need to disclose this during your affordability check. Also, lenders will ask you to provide details of any pension payouts or income support you receive (i.e. Universal Credit, Child Benefit, or child maintenance payments).
Monthly expenses
Lenders need to know how much you have going out, too. The balance between your income and expenses will help them decide whether you have the disposable income to make repayments on time and in full.
To do this, they might ask for recent bank statements, so they can understand what kind of monthly expenses you have, and how much you spend.
Examples of monthly expenses include:
- Mortgage repayments or rent payments
- Council tax and household bills for gas, electricity, and water
- Regular household expenses (i.e. insurance policies, food shopping, transport costs, etc)
- Childcare costs or school fees
- Mobile phone bills or contracts
- Entertainment subscription fees
- Any maintenance payments you make to an ex-spouse or partner
- Other debts or loans that you repay monthly
Having the relevant documents ready before you make a credit application may help avoid any unnecessary delays. For more information, check out our guide that explains what you need when applying for car finance.
Your credit file
Improving your credit score can help you pass an affordability check by proving to the lender that you’re able to borrow responsibly and manage credit effectively.
It’s not the only thing that a lender will check. They might look at your credit file to see how you’ve managed credit in the past. Your credit score is a three-digit number that reflects how well you can manage credit, and there are different brackets that can help you understand if you have a good credit score.
Ways to boost your credit score include:
- Only borrowing what you can afford to repay
- Meeting payment schedules on time (i.e. with your mortgage, household bills, and finance purchases)
- Avoiding falling into debt on any credit cards
- Being on the electoral register at your current address
- Not being close or going over your credit limit
- Keeping credit accounts open for long periods
How does an affordability check work?
Banks, building societies, and other finance providers will carry out affordability assessments before approving any credit applications.
Some lenders may conduct affordability assessments in the background without making you aware or giving you time to prepare any supporting documentation.
We make an affordability check on every application. If you are approved in principle, it means we need additional information to help with our affordability check. If that’s the case, an expert from our team will be in touch to guide you through the process.
If you’ve made a car finance application and are self-employed, or are claiming benefits, then we might need additional documents to confirm your income.
If you’re looking to finance a car, using an online car finance calculator can give you an idea of what your finance agreement might look like. While calculators are useful tools, remember that they can’t tell you for certain whether your application will be approved or how much you could borrow. A lender must do an affordability check before they can offer you credit.
Learn more about our application process, how it works, and what to expect.
Why are affordability checks important?
Lenders do an affordability assessment on any loan application you make to ensure you can afford to make payments in full and on time.
Without an affordability check, you could potentially borrow more than you’re able to repay. In some instances, this may mean you end up in debt, making it harder to get credit in the future.
Does an affordability check impact your credit score?
No, an affordability check forms part of what’s called a ‘soft search’ on your credit file, meaning it won’t impact your credit score. We use a soft search, which doesn’t affect your credit score and isn’t visible to other lenders.
Learn more about the differences between hard and soft credit checks.
What are the differences between affordability and creditworthiness?
Affordability and creditworthiness are essentially two sides of the same coin.
Lenders determine your affordability by balancing your income against your expenses to check whether you can afford a finance agreement. On the flip side, your creditworthiness refers to how likely you are to repay the money you borrow.
When making a lending decision, finance companies will take both affordability and creditworthiness into account.
Making a finance application with Moneybarn
We do affordability checks on all finance applications we receive to ensure we never agree to lend more than what is affordable for you. Whether you are looking to buy a new car, finance a van, or get motorbike finance, we only offer sustainable and affordable agreements.
To find out how much you may be able to borrow, use our online car finance calculator. Then, when you’re ready, get a quote today.
Representative 30.7% APR.
FAQs about affordability checks
What factors impact my ability to borrow money?
Your credit history
Lenders want to know that you’ll be able to repay your loan in full and on time, so look at your borrowing history for evidence of this.
If you have a history of missed or late payments or have regularly exceeded your credit limit on any credit cards, you may be seen as a higher risk to lend to. This means you might have trouble getting approved for credit, or are offered higher interest rates.
Your credit score
While having a lower credit score or limited credit history won’t stop you from borrowing money, it may mean you need to apply to specialist lenders. Additionally, the interest rates associated with any finance agreements will likely be higher.
Read our guide to learn about how to boost your credit score.
Existing loans and outstanding balances
Any outstanding debts on credit accounts, store cards, and personal loans may mean you find it harder to borrow money.
What happens if you fail an affordability check?
If a lender doesn’t think you’re able to afford the repayments on a loan, they can’t responsibly accept your application. This is to help prevent borrowers from ending up in financial difficulties and not being able to keep up with other regular payments.
If you fail an affordability check, lenders may offer you a smaller loan with more manageable repayment terms, but this isn’t guaranteed.
You can re-apply for finance if a change in your financial circumstances means your affordability improves. If your income increases or your monthly spending decreases, your ability to afford loan repayments without falling into debt can improve.
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)
