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Published 15 August 2022

How Does Car Finance Affect Your Mortgage?

When looking at your outgoings to determine affordability for a mortgage, lenders will take into account your car finance repayments. Also, because car finance is a type of debt, any missed payments could affect your credit score and eligibility for a mortgage.

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Let’s get straight to the point: Yes, car finance can impact whether you will be approved for a mortgage and the rates you’re offered.

Car finance is a form of debt and will be treated as such by a mortgage provider. So once you get to the point of approaching a mortgage lender, they’ll consider the outstanding finance you have to pay when assessing your mortgage affordability and deduct it from your income.

Moreover, if you mismanage your car finance by making late payments, your credit score will be negatively impacted. This can significantly limit your options when applying for mortgages, affecting everything from the products open to you to the rates you’ll be offered.

Whether you currently have a car finance deal and are looking to take out a mortgage, or you are saving for a mortgage and considering taking out car finance in the meantime, we’ll explain your options in this guide.


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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.

How does car finance affect a mortgage application?

If you apply for a mortgage while you have outstanding car finance to pay, lenders will factor in the repayments as part of your outgoings when assessing your mortgage affordability.

Because car finance will be a significant, regular expense, the repayments will affect how much mortgage lenders will let you borrow. The rationale is that the more you pay each month towards your car, the larger the proportion of your income is spent on car finance, and the less you have to repay your mortgage.

Mortgage lenders will assess whether you can afford your mortgage payments on top of your car finance payments and any other debts, as well as your usual expenses.

Lenders will also examine your credit rating carefully when you apply for a mortgage. Any missed car finance payments will appear on your credit score and could affect your mortgage application.

Can I afford a mortgage if I have car finance?

Mortgage providers will scrutinise your finances when you enquire about one of their mortgage products to determine how much you can borrow.

Having car finance may limit the opportunities available to mortgage applicants. For example, having outstanding finance on your car may mean you get offered lower loan amounts and higher rates of interest by lenders who consider you a higher risk if you have multiple loan repayments to meet.

During a mortgage affordability assessment, the provider will inspect your bank statements, typically for the three months before you made the application, to get a handle on your spending habits.

If they see you are spending a few hundred pounds a month out of your salary on car finance, they may see you as having limited spending power. Your affordability for a mortgage, therefore, will be judged on the proportion of your salary that goes towards your car finance payments, any other debts, and your living expenses.

Lenders will look at something called a debt to income (DTI) ratio to determine how much of your income goes towards debt repayments, including car finance, loans and credit cards. You can calculate your DTI ratio here.

They will want to make sure your income is sufficient to comfortably cover your bills, loan repayments (including car finance) and living expenses, before offering you a mortgage.

Although not necessarily taken into account by the mortgage lender, bear in mind that all the associated costs of running your car, including petrol, road tax, insurance, breakdown cover and maintenance, will also affect how much you could afford to spend each month on a mortgage. Our guide on how much it costs to run a car in the UK can help you understand how much you are spending on your car each year.

» MORE: Calculate how much you can borrow for a mortgage

Car finance and credit score – how does car finance affect my credit score?

When you apply for car finance, the lender will perform a hard credit check which will leave a mark on your credit score. Too many hard checks in a short period will affect your score, so you should try to minimise these and spread out any applications for credit.

Paying off your car finance on time will help to improve your credit score, as it shows you to be a responsible borrower. However, any missed payments will leave a mark on your credit score, which could make lenders wary of lending to you or prevent you from getting the best rates of interest.

Before applying for any form of finance, you should check your credit score to understand your financial circumstances and chances of being accepted for the loan you require.

This will allow you to improve any areas that may be dragging your rating down.

Your credit file will tell you of any debts that you have yet to repay and highlight any late payments. Fortunately, there are a number of immediate steps you can take to rebuild your credit history.

Alternatively, you can consider approaching specialist providers who offer mortgage deals to those with poor credit histories.

Be aware that these providers will often charge higher interest rates than if your credit was good.

How to improve your chances of getting approved for a mortgage

Whether you are currently making car finance repayments or you are thinking about applying for car finance, there are some things you can do to minimise the impact car finance could have on your mortgage application.

About the Author

Rhiannon Philps

Rhiannon has been writing about personal finance for over three years, specialising in energy, motoring, credit cards and lending. After graduating from the University of Cambridge with a degree in…

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