Car Finance & Mortgage Repayments: Everything You Need to Know

If you are interested in taking out a mortgage or buying a car, it is important to know how a car loan and a mortgage affect each other.

Mortgage lenders consider your entire financial history when deciding how much they will loan you, what you will owe in fees, and what your interest rate will be. This means adding a car loan to a home loan can have a significant impact on your mortgage repayments.

While this may sound negative, a car loan and a mortgage can have positive effects on each other. Here, we’ll cover questions such as, “What car loan can I afford?” and “Can I get a mortgage with a car loan” to help you learn all the in’s and out’s of having a car loan and a mortgage.

How Does a Car Loan Affect a Mortgage Application?

When you work with potential lenders and apply for a mortgage, they will want details on your current financial situation. One of the biggest questions will involve any loans or debts you have, including auto loans.

Potential lenders want the security of knowing you will make repayments on a car loan on time. This means they will carefully review your financial circumstances to ensure you have the finances available to make timely repayments on a car loan or your mortgage.

How Does a Car Loan Affect Mortgage Repayments?

Loan repayments can impact your credit score. Making loan payments promptly will likely increase your credit score. When potential lenders check your credit history and credit score, this plays an important role in how much they will loan you and the interest rate they offer. Generally, a higher credit score helps you get a lower interest rate, which can save thousands of dollars throughout repayment.

If you continuously make your car loan payments on time, this activity is noticed by lenders and helps increase your chance of getting your mortgage application approved. It may even decrease the fees associated with obtaining a mortgage.

Can I Add a Car Loan to My Mortgage?

If you have a mortgage payment that takes up a significant portion of your monthly income, you may not be eligible for a car loan. Your potential lender will consider your monthly expenses and any current debts to determine the answer to “Can I add a car loan to my mortgage?”

What Factors Are Important to Potential Mortgage Lenders?

Although your current car payment is an important consideration for potential mortgage lenders, your entire financial situation is taken into consideration to decide on mortgage rates and eligibility.

These factors include:

• Monthly expenses such as utilities, rent, groceries, gas, etc.
• All forms of income, including side jobs, salary, government assistance, dividends, etc.
• Credit score
• Credit history
• Current loans or debts, including student loans, credit card debt, personal loans, or auto loans
• Amount of down payment
• Repayment period

Should I Space Out Getting a Car Loan and Mortgage?

It is generally recommended to space out large purchases, such as obtaining a mortgage or getting a car loan.

If you intend to apply for a mortgage soon, getting a car loan now can help improve your credit score and increase your chance of getting a better mortgage rate in the future.

If you need to get a car loan and mortgage in the same year, it may be best to space them out by at least a month or more, if possible. Applying for both loans at the same time may reflect poorly on your financial situation and make lenders nervous.

Can a Car Loan Improve Your Credit Score?

Australia implemented positive or comprehensive credit reporting in 2014, allowing positive choices to contribute to your credit score. Before implementing this policy, only negative choices affected credit scores.

This means a car loan can raise your credit score if repayments on the car loan are timely and responsible.

What Car Loan Can I Afford?

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