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.
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!