Get Insurance QuotesGet Finance Quote
Home > FAQs > Car Finance > What is a Car Finance Affordability Check?

What is a Car Finance Affordability Check?

How does affordability affect car finance?

A car finance affordability check is pretty simple – it’s a way for the lender to see if you can afford to pay back the loan and not struggle with your repayments.

Lenders consider your monthly income and regular outgoings to arrive at “disposable income.” Also, it helps to establish the amount you can afford to borrow.

The affordability check includes a few questions including:

  • Your monthly income.
  • Your employment status.
  • Any other household income (like your partner’s salary).
  • Your rent/mortgage payments.
  • Other household payments (groceries, phone bills, and so on).
  • Are you likely to experience a decrease in income any time soon?

You’ll likely succeed if you meet the lender’s affordability criteria and have a decent credit score.

Some Car Finance Affordability Checks go better than others!

Let’s consider an example of an excellent credit score but low Affordability

Imagine you’d like to apply for finance on a Ferrari Roma EMI. You’ve got an excellent credit rating, so you kick back and hit that ‘apply’ button without a care in the world.

And while you have a good credit rating…you probably can’t afford it — a monthly PCP payment of over £8,000.

So, you have no chance if you earn £2,000 per month.

Here’s an example of less- than perfect credit score but high Affordability

Your credit rating is pretty average. You’ve only recently taken out a credit card, so you don’t have a lot of history.

You earn £1,600 monthly and want to buy a brand new Ford Ka on a PCP deal. You’ve been saving diligently, and working extra shifts at your part-time job, so you have a reasonably sizable deposit to put down. Your monthly repayments work out at around £100 per month – a small percentage of your income – less than 10%.

Utilising such a low proportion of your income means that the lender will likely consider the risk of lending to you reasonably low. You’ll probably get finance, even if your credit could use a little work.

Conclusion

A lower credit score need not prevent you from the golden ticket to a car finance deal. Someone with a lower credit score might readily get accepted over someone with a higher score because they have better Affordability. Remember, this is in place for a reason. Only get car finance on a car you can afford!

Related FAQs

Am I Eligible for Car Finance

Your car finance eligibility will depend on the lender that you apply with. Each lender has different eligibility criteria that they consider.

However, you must be over 18 years old and have been a UK resident for at least three years to qualify for a loan.

What Documents Do You Need for Car Finance

Lenders need documents/paperwork when you apply for car finance to verify you are who you say you are, protect you from identity theft, and ensure they don’t borrow more than you can realistically afford.

What Checks are Done for Car Finance

Applying for car finance can be a reasonably stress-free experience. However, as you would expect, the lender must carry out specific checks to verify and protect your identity and establish you can afford repayments on the amount you want to borrow.

What proof of address do you need for car finance?

To be approved for car finance, most lenders will require you to have at least three years’ address history in the UK. You can provide proof of your address by supplying copies of your recent utility bills, your Council Tax statement, or your Tenancy Agreement if you rent. These documents will usually need to include your full name and address.

Browse Categories