A car loan can help you a lot if you plan to get your next car faster. However, a car loan can affect your mortgage application or other types of significant loans. If you are planning to buy an expensive car, this means that you will require a large loan. That car loan can impair your future borrowing power. But this doesn’t mean that you need to choose just one of these two.
Let’s see how a car loan can influence mortgage applications and how we can deal with such a situation.
First Things First
When you apply for a home loan, you will need to provide information regarding your financial status. This means that you will have to give documents regarding your monthly income, assets you own and other ongoing payments. This is how a lender will determine whether you can pay back the loan or not. Every lender wants to avoid doing business with people who might not be able to keep their word because of their financial problems. They want profit, not excuses.
If it were a personal loan, your mortgage application would be fine. But since we are talking about an expensive car loan, your mortgage application might get rejected due to your other massive loan. Either that or come with a lot of restrictions.
Will My Car Loan Affect My Mortgage Application?
A car loan will have a high impact on your finances. Given all the taxes you need to pay, a car loan can take most of your monthly income. Still, aiming for a cheaper car might be of some help. Since cars tend to lose their value quite quickly, getting a very expensive one may not be a good idea, especially if you intend to apply for a mortgage.
Mortgage applications will act the same so that you will be left with little to no money. This is why a lender will probably have to refuse your mortgage application.
A lender wants to know that you will pay your mortgage and you won’t default on it. He will analyse your assets and other methods of income. If he sees that you have the financial power to afford a car loan and a mortgage at the same time, he might give you the green light. If not, it might be better for you if you only had one.
Defaulting on a mortgage is not a good sign for your lender and your finances. Car loans and home loans can quickly turn into uncontrollable debts, and you might end up losing everything. So don’t think of the lender as the bad guy, but be objective and calculate what you can and can’t afford, because in the end, if you are dishonest, you will suffer the most. Because banks and lenders make sure they never lose.
Can I Still Be Eligible for a Mortgage Application?
Yes, you can. Your car loan will affect how much you can borrow, but if you don’t want an expensive house, that a limited amount of money can be just enough. If you can’t get the sum you need, you can search for an affordable home. When it comes to loans and money, flexibility is a must.
If you want to increase your chances of getting your mortgage application approved, then it’s time to clean a little bit of your credit file. Pay your debts and try to repair your bad credit. Also, consider debt consolidation as a possibility. Lenders will check your credit to find out who they are dealing with and also what other assets you own, just in case they might have to make up for that loan with something else rather than your money.
Having a savings account is a great idea. It makes you more trustworthy and responsible in the eyes of your lender. Let’s not forget that having some savings might help you quite a lot to reduce the amount you would apply for.
Also, try to talk to your lender. The more information he gets regarding your situation and income, the bigger the chance of getting your request approved. Don’t forget to tell him your exact plans.
So, the short answer is that a car loan can influence mortgage applications and under certain circumstances, it can get your requests denied. But do not let yourself discouraged. Evaluate your possibilities, cut down on the unnecessary expenses and, if you can, try to pay ongoing debts before applying for a mortgage.
You can talk about these details with Australian Lending Centre. Our friendly consultants will tell you about your chances of receiving a loan and, if you fit our criteria, you may even get a good mortgage option. Advice never harmed anyone so you should not miss the chance of clarifying your options face to face with an expert.