How car loans can impact home loans

Can a car loan impact the amount you can borrow when purchasing property? Read on to find out.

If you are applying for a home loan, there are a few things to consider with regard to your current financial commitments. One of the most common and significant personal loans people have is a car loan. So how can a car loan impact your borrowing capacity when it comes to applying for a home loan?

Existing loans

You may already have a car loan in place at the time when you are looking to apply for a home loan. It is important to understand that the process of applying for a home loan requires your chosen lending institution to assess your borrowing capacity. To do this, each institution will have its own set of lending criteria, but most commonly you will be asked what your income is, and what your outgoing expenses are – including any other loans you are currently repaying.

Your financial assessment will impact the amount you are eligible to borrow. For example – if you are currently paying off a personal loan for your new car, this will impact the amount you are eligible to borrow towards your home loan. You will need to seek professional advice from your mortgage broker or bank manager in regards to your specific situation, and it might require shopping around to find out what the best deal is for you and your circumstances.

How can I improve my chances of getting a home loan?

There are lots of factors that lenders take into account when approving home loans. Everything from your current employment status to how long you have been employed all plays a part in your eligibility. If you are self-employed, you will need to be able to produce proof of your ongoing income to show the lender you are capable of making your mortgage repayments. Permanent employment such as full-time or part-time will be looked upon more favourably than casual employment.

How much you have saved in terms of a deposit can also impact the loan amount, and of course personal debt such as credit card debt and car loans that you are currently repaying.

Have a discussion with your mortgage broker about the best way to service your current debts – whether it’s rolling them into your home loan, rolling them into one personal loan, or leaving them as they are. Your financial advice should always come from someone accredited to give you the best possible information, so be prepared to address your options with your lender and don’t be afraid to ask questions.

I want to buy a new car when I buy my new home

There is nothing more exciting than purchasing a new home and a new car and sometimes it’s a good move to do it all in the one go – especially if you’re relocating from interstate or overseas.

If you are looking to make some big-ticket purchases, you will no doubt have been saving your money to ensure you have a deposit.

Buying both cars and homes comes with additional costs on top of the price of the property and the car. These costs include stamp duty, insurance, any sales taxes associated with the purchase and there may be fees associated with your financial institution and applying for finance. It’s good to keep this in mind, because the more you can pay upfront, the less interest you will pay in the long term. Do your research on the kind of car you’ve got your eye on and the additional costs associated with buying that car. And have a play with loan calculators and stamp duty calculators to figure out the cost of loans with and without the stamp duty amounts – if you can pay the additional costs upfront, it will reduce your interest on your home loan in the long run.  


This is a sponsored post written by Ken Mills Toyota