If you’re looking to get a mortgage in the near future, you may ask yourself whether your car finance application will impact this. The truth is, mortgage providers will look at a whole range of factors before making an offer, and vehicle finance is one of them. These lenders have to try and build a picture of your financial situation through things like credit you’ve borrowed, as well as other regular outgoings.
To help you better understand the relationship between car finance and a mortgage application, we’ve looked at this topic in more detail below:
Car Finance and Your Credit File
In terms of how your credit history and car finance agreement can impact your mortgage application, the important thing to remember is that lenders will use this information to get a better idea of how you manage your money. Your credit history is used to calculate your credit score, which is a number that represents your ability to repay loans and other forms of credit. For example, if there were a lot of missed payments and defaults in your credit history, you may have a lower score. Loan providers may therefore be less likely to lend to you.
When you apply for a mortgage, the lender will look through this information, paying particular attention to larger credit applications such as vehicle finance. If you weren’t able to keep to your car finance instalments, even if you’ve since paid off the loan, this could lower your credit score, and make it harder for you to borrow money for a mortgage.
Will Car Finance Prevent Me From Getting a Mortgage?
Overall, having a vehicle on finance shouldn’t stop you from taking out a mortgage. As long as you’re able to afford both the car loan and mortgage repayments, along with the rest of your priority expenses, vehicle finance itself wouldn’t prevent you from completing a mortgage application.
Issues tend to arise when individuals try to take out more credit than they can afford to repay. For instance, if you were looking to borrow a large amount of money for your mortgage, and your vehicle loan had very high monthly instalments, you may struggle to keep to both agreements. This can also be an issue with other forms of credit – if you have numerous debts you’re repaying, and may find it difficult to repay a mortgage, lenders may turn down your application.
Can I Get Car Finance at the Same Time as a Mortgage?
While technically you are able to take out a mortgage and a vehicle loan at the same time, it’s not recommended. In fact, you should generally avoid completing more than one credit application at a time, from credit cards to personal loans. These types of finance applications will be recorded on your credit file, and regular applications can be a concern for lenders.
If a finance provider sees that you are applying for a lot of credit, this may imply that you are in financial difficulty. It may also suggest that you’re borrowing above your means, and you won’t be able to keep up with the repayments.
Can I Improve My Chances?
Chances are, you probably won’t be applying for vehicle finance and a mortgage at exactly the same time. So is there anything you can do in order to take out a car loan, and then successfully get a mortgage later down the line? We’ve looked at three simple tips below, in order to secure your perfect set of wheels, as well as your dream home!
1. Make Payments on Time
Sticking to your repayments demonstrates to lenders that you’re able to properly budget, and manage your finances well. It will also help boost your credit score. Late and missed payments, on the other hand, are likely to lower your credit rating, and can negatively impact your chances of loan approval, particularly for a mortgage.
Making credit repayments on time can thus ensure mortgage providers see you as a responsible borrower, making them more inclined to lend to you. And as payments such as your phone bill and utilities are recorded on your credit file too, paying these on time can also increase your chances of being approved for a mortgage.
2. Carefully Consider Your Budget
When making a vehicle finance application, if you know you’ll be applying for a mortgage in the near future, it’s essential that you buy a car you’re able to comfortably afford. While some of the more modern and luxurious cars might turn your head, you may have to be more practical, asking yourself which vehicle would best suit your needs.
Of course you may be in the fortunate position of being able to afford large car loan repayments alongside hefty mortgage instalments. The important thing is to go over your budget, and only look at options you’re able to afford without struggling.
3. Settle Before Applying for a Mortgage
Another thing you can do to improve the likelihood of getting a mortgage alongside your car loan is to settle the latter before applying for the former. Paying off your vehicle finance loan on time will not only demonstrate your ability to stick to such agreements, it will also mean the money you were putting towards this loan can be used for a mortgage instead.
If you have a poor credit history, settling your car finance loan may also improve your credit score. This can mean you’re offered better rates for your mortgage, and have to pay back less interest overall.