Can Buying a Car Affect My Mortgage?

When applying for a mortgage, lenders perform a standard background check, and this includes looking into your finances, and if you’ve taken out a finance deal on a car. To lenders, car finance deals are considered a form of debt, as you owe money to the finance provider. How promptly, or not, you make your payments impacts on your credit score, and if you have a poor one, this may mean you won’t qualify for a good mortgage deal. 

Typically, the rule goes that the more money you owe on a car, the less money you’ll be lent for your mortgage. Equally, if you have other significant debts, this can also affect the likelihood of being accepted. 

How does buying a car on finance affect my credit score?

Your credit score is worked out from your credit report. Your credit report is in essence historical data on any loans and credit you’ve taken out in the past, such as outstanding loan agreements and utility company payment records. In addition, it will show whether you’ve repaid these on time, and in full. If you’ve managed to, then this will give you a good credit score. 

Even if you’ve paid off an existing car finance deal but you made late repayments on it or defaulted on them then this can damage and negatively affect your credit score for years after.

The better your credit score, the more financially stable you’ll seem to a loan provider. As a result, you’re much more likely to get greater mortgage options and better interest rates.

Alternatively, if you have a poorer credit score, you’ll have fewer mortgage options available to you and likely higher interest rates. There is also the potential that you may be rejected altogether if your credit score is really poor. 

Is it possible to apply for car finance and a mortgage at the same time?

It’s not recommended. The more applications you apply for in close proximity the less likely you are to be accepted as it can make you look desperate for money. A general rule of thumb is to not make any new car finance applications between putting an application in for a mortgage and its final completion. Once your mortgage has been settled and if you decide to apply for car finance, this won’t affect your mortgage repayments.

Once you have organised your mortgage, just keep in mind the monthly payments on your car finance deal weighed up against your monthly income, as you still want to make sure it's achievable. If you decide to finance a car where you can’t keep up with the monthly repayments, you’ll then run the risk of not only your car, but your house being repossessed.

Have more questions about car finance? Hilton Garage can help you find the best car finance deals on used cars ranging from personal contract purchase, to hire purchase and even bad credit car finance. Enquire with us today to find out more.