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Does car finance affect your mortgage?

Getting a car on finance might have an effect on your mortgage, depending on where in the process you are

Car finance

Car finance can definitely have an impact if you’re applying for a mortgage – especially if you have a particularly large finance balance to pay.

Your car finance will show up on the assessments that your mortgage providers will carry out, so seeing a large amount of debt from your car finance could make them offer you a lower amount for your mortgage.

Car finance and mortgage

If you know you’re planning on applying for a mortgage soon, it’s a good idea to reduce the outstanding balance of the car finance as much as possible, or pay it off completely if you’re able to.

If you already have a mortgage, getting a car on finance won’t affect this – just make sure you can still cover your mortgage payments with the car finance added on top.

As car finance is a form of debt, it will show up on future credit checks. That’s why it’s important to keep on top of your payments, especially if you’re hoping to get a mortgage soon.

How does car finance affect your credit score?

Car finance can affect your credit score in different ways, and this can have an impact when you apply for a mortgage or come to renew.

The initial hard credit checks that often come with car finance contracts can have a negative impact on your credit score, but continuing to pay off your finance on time and never skipping payments can actually see your credit score improve.

Having too many hard credit checks can also have a negative impact on your score, so it’s important to make sure you're only getting these when absolutely necessary.

Soft checks are much better for your credit score overall, so try and stick to these where possible.

How does car finance affect affordability checks?

When you apply for a mortgage, your lender will carry out an affordability check to see how much you can afford to lend and pay back.

These checks will look into areas like your employment status, your income, any extra allowances, and your credit history.

If you have a large car finance loan that will show up on your credit history, your affordability check might show that you don’t qualify for as big of a loan as you were expecting. That’s because you’ll have a higher number of outgoings – the more debts you already have, the less comfortable lenders will usually feel giving you another loan.

You should only apply for finance that you can afford to pay.

Is car finance classed as a personal loan?

Car finance is not classed as a personal loan as it can only be used to pay for a car, whereas a loan is unsecured borrowing that can be used for almost anything.

The lender will, however, usually ask you to confirm the purpose of the loan at the time of application.

You can still use a personal loan to finance a car, but not all finance is considered a personal loan.

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