A car finance affordability check helps lenders understand if you can afford the car loan you’re applying for and will be able to make the monthly payments without going into financial difficultly. During the check, lenders will look at your disposable income, which is the amount you have left over from your pay once all your essential bills are paid.
How does affordability affect car finance?
Affordability checks are one of the tools lenders use to assess your car finance application.
A responsible lender must make sure you can comfortably afford any loan they give you. They’ll look at your monthly income and your essential bill payments to work out how much disposable income you have left over. This amount can help them see how much you can afford to borrow to buy a car.
Most affordability checks will ask you to share details including:
- Your monthly income
- Your employment status
- Any other income in the household (like your partner’s salary)
- Your rent/mortgage payments
- Other household bills (gas, electricity, food)
They’ll also ask you if you’re likely to see your income decrease any time soon, for example, if you’re about to go part-time or go on maternity leave.
What happens if I have a good credit score but low affordability?
Credit scores are important – but they’re not everything. Lenders will use the information they find on your credit report like your payment history to understand how you act as a borrower. You’ll likely have a good credit score if you always make payments on time, don’t max out your credit cards every month, and have registered to vote.
But while your credit score is looking good, your disposable income is a different story.
Imagine you earn £2,000 a month. Once you’ve paid your rent, all your bills, and covered the cost of your food shop and a full tank of petrol, you’ve only got £400 leftover.
Then you apply for Hire Purchase finance on a £30,000 Audi A3 – and you get rejected.
That’s because your monthly payment would wipe out your entire disposable income. If your electricity bill suddenly goes up, you won’t have that buffer available and might have to start making tough decisions like choosing food or heating.
What happens if I have a bad credit score but high affordability?
Let’s flip the scenario and imagine you have a credit score that could do with some work. Maybe you’ve made a couple of late payments, had a few hard searches on your credit report in a short time, and forgot to register on the electoral roll when you moved house.
You earn £2,000 a month but your expenses are low. You live at home rent-free and you’ve been working extra shifts at your part-time job to save a deposit. You have over £1,000 in disposable income and you’ve got your eye on a £10,000 used VW Golf.
A monthly HP loan payment on that car would likely leave you with plenty of disposable income left over and so, despite your low credit score, you could be approved for finance!
No matter your credit score, remember that affordability checks are there for a reason – they protect the lender, but they protect you too. Never commit to a loan with payments that you can’t afford.