If you’re in the process of applying for a mortgage, car finance will affect how much you can borrow. This is because lenders see it as a form of debt, so the bigger this debt is, the less they’ll lend you for a mortgage.

How car finance affects your mortgage

It’s only if you’re yet to take out a mortgage that having car finance will affect your application. Banks and other finance providers will take a close look at your credit profile and consider many elements, including your credit score, employment status, your history of repaying loans and any oustanding debt you may have.

Because car finance is a form of debt, a lender will take this into consideration before deciding how much money they can offer you. While each lender has their own criteria, most will take the stance that the more money you owe on your car, the less they’ll be able to offer you for your mortgage.

If you can afford to settle your car finance early before taking out a mortgage, this is recommended. You’ll be able to get a better mortgage rate from a lender if you have less debt on your profile.

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Is it bad to get a car loan before a mortgage?

Yes, if you can avoid taking out car finance – whether that be through a traditional loan, or a finance agreement such as PCP – then you’re more likely to get a better the amount lenders will be able to give you for a mortgage.

Once you have a mortgage, it won’t matter if you get a loan for a car. Your monthly mortgage payments will only change in circumstances such as you have an adjustable rate mortgage (ARM) and the interest changes during your term.

The only thing you’ll need to be aware of is taking on additional monthly payments on top of your mortgage repayments. So, remember to make sure you choose a car that’s affordable once you’ve factored in your other outgoings, including your mortgage. Otherwise you risk your house and car potentially being repossessed if you don’t keep up with the monthly payments.

Applying for car finance and a mortgage at the same time

Balancing your mortgage application and car finance application is key to getting the home and vehicle you want.

If you’re in a situation where you need to apply for a mortgage and car finance, it’s important to consider your income. Applying for a flashy car and huge house if you have a modest budget may mean you end up getting approved for one, at the expense of the other.

Finance providers for homes and cars will consider your application for one another if you decide to apply at the same time. So, you’ll want to make sure that you’ve got your priorities right and decide whether a bigger house or swankier car is what matters most to you.