Putting money towards a car and a house are probably the two biggest financial commitments you'll make over the course of a lifetime. A mortgage is usually the bigger commitment of the two, so if you're thinking about getting one, you may be wondering whether a PCP or car lease deal could hinder you in the process.
Well, we can tell you definitively that it might. Alternatively, if you play your cards right, it could have no impact whatsoever. For information about why this may or may not be the case, and about how you can preserve your credit score, please read on . . .
Will getting a car loan affect my mortgage?
Certainly will. Since a car loan is technically a form of debt, mortgage lenders will take it into account when deciding how much money they can offer you. The more you still have to pay back, the less they'll offer you, and you won't have access to the best interest rates. Too much debt and you could be refused a mortgage altogether. However, having a history of paying back loans is something lenders will look favourably upon.
How does car finance affect your credit score?
As with other bills like credit card payments, a car finance deal can negatively affect your credit score if you default on it or fail to keep up with the monthly payments. On the flipside, your credit score could also improve if you consistently pay on time.
How is a mortgage application assessed?
Lenders assess your current and future finances, your employment status and any debts you owe now and in the near future, including car PCP and lease payments. Even if you have no outstanding debts, they will still take into account your credit history and reliability when it comes to repayments.
Can I afford a mortgage if I have car finance?
It all depends on your total monthly income and outgoings and whether you can afford both the mortgage and car payments. Whilst getting approved for an expensive deal on your dream car might seem enticing, it could then mean that you risk getting turned down for a mortgage on your dream home, and vice versa.
How do I improve my chances of getting improved for a mortgage?
Firstly, build up your credit score before applying for a deal. You'll then be seen as more financially responsible. It's also generally a good idea to take out car finance after you've gotten a mortgage, so as not to risk it affecting your mortgage application. Or, if you're already locked into a car deal, consider whether you can afford to settle the car finance early.
How can I check if I'm eligible for a loan?
Agencies like Equifax and Experian provide a free credit score review or 'soft search' on your credit profile. That's opposed to a 'hard search', which will leave a footprint on your file that could affect future applications. Too many hard searches in a short space of time makes you appear more unreliable to lenders.