Can car finance affect my mortgage?

1 January 1970
By Joy Pearson
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Maybe you were recently married, or maybe you finally got that job that will give you the stability you need to start thinking about the future. Whatever your particular case is, if you are looking to finance a car, you might wonder how that will affect you securing a home. Keep reading to learn more about the relationship between car finance and  mortgages, as well as a few useful tips!

How does car finance affect your credit history?

A credit history is the record of your financial dealings such as credit card payments, loans, and any payment defaults. That credit history is then used to generate a credit score used by mortgage lenders to determine if you are eligible for a loan and at what interest rate. When you apply for a mortgage, lenders will likely take a thorough look at your finances, including any car finance deal you’ve had. Defaulting on car finance payments, even years after you’ve paid off your car can damage your credit report and score and, in some cases, you may find yourself ineligible for better mortgage deals or a mortgage at all.

To ensure that getting a car on finance works in your favour, and therefore increase your chances of being able to buy your dream house later on, always consider the following tips: 

Make your car payments on time

This will always improve your credit score, whilst late payments can naturally reduce the amount of credit provided to you by mortgage lenders. Making your car finance payments on time is likely to encourage mortgage lenders to see you as a responsible borrower.

Choose a car you can comfortably afford

Avoid turning your head to the most expensive and fancy car on the market (unless you can perfectly afford it) and, instead, think in terms of usefulness and practicality. In other words, ask yourself which car do you really need right now based on your personal and professional needs? This will ensure that you can easily make your payment by the end of the month without stressing. 

Clear your balance before applying for a mortgage

Without some of your money going into car finance payments every month, you can save more money for your mortgage deposit, and mortgage lenders will definitely see more pros than cons when deciding what kind of loan you’re eligible for. This tip is more appropriate for those have car finance with a poor credit history, as paying off the car will improve your credit score and help you gain the best mortgage terms. If you are ready to apply for a car loan, you can use our Car Finance Calculator, where you can check your approximate monthly payments and pick the amount that best suits your financial circumstances.