When you apply for a mortgage, part of the process will involve going through your finances – in great detail. This includes past, present and future payments and one thing that always comes up is car finance deals.
Put simply, car finance agreements are a type of debt and can impact your credit score – whether you’ve paid on time or not. What’s more, the impact of them can linger around for many years. So, in this blog, we highlight everything you need to know about car finance and its effects on mortgages.
Car finance and your credit rating
When you go to see a mortgage broker like Trussle, they’ll ask you a series of questions to help to piece together a credit report. This is an overview of your financial position, from the last few years, and includes information on credit cards, loans, any other debt and your payment history. As a type of debt, this is where car finance comes up.
Your credit report then generates a credit score, which mortgage lenders use to determine whether or not you qualify for a mortgage – and the specific interest rate. If you’ve always paid any loans or debt on time, then your credit score is likely to be high. The higher your credit score, the better chance you have at getting a good mortgage deal as you’re deemed to be financially stable and responsible.
Don’t worry if your credit score is low though. There are a few things you can do and you’re likely to still be eligible for a mortgage – just at a higher interest rate.
Car finance and affordability
When you apply for a mortgage, lenders will also want to assess your affordability. To do this, they look at your incomings and any regular expenses including car finance deals. If you pay a particularly large amount of money every month, mortgage lenders may be worried about the amount of disposable income you have, and therefore whether or not you can afford to pay for your mortgage.
If you can prove that you’ve been able to pay for your car finance for a while now, and even alongside monthly rent, you’re likely to be in a good position.
