When it comes to getting car finance a lot of jargon can get thrown around and if you find yourself left scratching your head, then you’re not alone.

One of these confusing car finance terms is ‘affordability’.

What does affordability mean?

What is meant by affordability?

If you are thinking of applying for any type of loan then the word “affordability” will soon come up. If you are after car finance with bad credit, then this word is likely to be even more common. You may have heard you need to be able to prove your affordability, or may have to go through an affordability check, but what does this actually mean?

Essentially affordability means what can you afford. Lenders will want to take a look at your monthly incomings and outgoings to see whether you can reasonably afford to meet repayments. You may think your income is the most important factor, however, it depends on what you have left at the end of the month, not what comes in.

The more money you have left at the end of the month, the better chance you can afford car payments, and this is effectively what the lenders are looking for.

Top Tip: Ensure your income goes into your bank account. If you get paid cash in hand, then you will need to bank this money for at least 3 months before you apply. Lenders often ask for three months bank statement therefore ensure all the income you receive will show up on your statements.

Responsible Lending

As part of being a responsible lender, companies must be able to prove they put in the right checks to ensure customers they approve for finance can afford the repayments. Nobody wants someone to get into financial trouble because they have been accepted on a car payment that is beyond their means.

However, lenders are only able to go off the details you give them. If you are planning on moving to a new house or starting a family then you may be aware of your affordability becoming less in the future. You don’t have to take out the max loan that is offered to you. If you are in a situation where you believe you will have more expenses soon then factor that into your budget.

How to work out your affordability

Lenders will opt to do an affordability check before they payout your loan, however, you should also look into your finances as well before applying so you know what to expect.

The easiest way to work out your affordability for a car loan is by grabbing a notepad or setting up a spreadsheet. List all of your income, (wage and benefits, etc) and your expenses, (mortgage, rent, bills, food, etc), subtract your expenses from your income to see what budget you have left.

Top Tip: Don’t forget that many benefits contribute to your affordability and are accepted as valid forms of income by our lenders. For more information on valid benefits please see our car finance for people on benefits page.  

Remember that a car brings in more expenses than finance alone. Don’t forget to factor in car tax, insurance, running costs, and maintenance costs. And as mentioned above, if you know that some upcoming lifestyle changes may be on the horizon that could cause some additional expenses, then be sure to factor these into your budget.

What is more important out of affordability and credit scores?

Most customers come to us because they are worried that a poor credit score is going to prevent them from getting approved. The lenders do indeed look at your credit file to gain an understanding of your ability to pay back loans. However, affordability is often seen as more important. You can get approved with a bad credit score, you won’t be approved if you can’t afford the repayments.

Does a deposit impact affordability?

The majority of our car finance lenders will offer you no deposit car finance, but that doesn’t mean you can’t opt to put one down. Deposits, especially if substantial, can affect your affordability and possibly increase your chances of being accepted for car finance. Choosing to put a deposit down if you have the money to do so can also be beneficial by reducing the total amount of credit, you’re taking out which you pay interest on.

Whether a deposit will benefit you or not can be quite a personal decision and there are often pros and cons to whether it is suitable for your circumstance. When you apply for car finance with us, your personal car finance expert can run you through the offers on the table and work out the impact a deposit has on your monthly and total payments so you can make an informed decision that works best for you.

Is affordability the only criteria for getting car finance?

Affordability is a huge factor when it comes to getting car finance however it is not the only factor. To qualify to apply for car finance, you must be at least 18 years old, have lived at a UK address for a minimum of 3 years, not be currently bankrupt, and of course, be able to prove you can afford the repayments. 

Can I still get car finance if I fail an affordability check?

Unfortunately, you won’t get approved by a lender if they don’t believe you can afford the repayments. As annoying as this may feel, it’s to benefit you and ensure you don’t end up in debt and serious financial trouble. 

That said, there are a few things to consider if you really need a car but are struggling to get approved on your own. A joint car finance application can be a fantastic way to do this. If you have a partner or family member who is happy to support you, your combined income could take you over the affordability threshold. This isn’t a decision to be taken lightly and should be researched by both parties, but it can be a fantastic option in some situations. 

We hope your understanding of affordability is a little clearer now. If you have any questions please don’t hesitate to get in touch. 

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