A car is usually your second-most expensive asset, after your home. And how much you can borrow for it depends on a few things.
When deciding whether to accept your finance application and working out how much you can borrow, a lender will look at a variation of your financial characteristics, as well as your credit history.
- Whether you keep up to date with other bills
- How much you earn each month
- If you already have a lot of other loans or lines of credit
- The value of the car you’re interested in
- How long you want the agreement to last
- Whether you’re making a deposit and how much
- How much it would cost you to run the vehicle
All of these things come together to help a lender decide whether to approve you for car finance and how much you can borrow.
So, let’s take a look at how each impacts your application.
Your credit history includes things like whether you keep up to date with your monthly payments and bills and which other loans or lines of credit you already have open, such as a mortgage or credit cards.
Missing payments or making too many applications for finance in a short period of time are two of the most damaging things you can do to your credit score.
And lenders will use this information to see if you’re creditworthy and decide how much you can afford (your affordability).
How much you earn
Another huge factor in your affordability is how much you earn. It’s not about earning the most, but whether you live within your means and what impact having car finance would make.
If you already regularly spend more than you earn, then it’s less likely you’ll be accepted for a new car finance application, albeit not unheard of if you have a strong track record of keeping up with repayments.
It’s also important for you to look at your affordability in detail before making an application or getting a car on finance. You don’t want to overstretch yourself, as the implications could be more than just damaging your credit score.
The value of the car you’re interested in
Like how much you earn, a lender will look at the value of the car you’re interested in and make a judgement call on whether they think you can afford it.
If, for example, you’re in a low-paying job or have little disposable income, the likelihood of you being accepted for finance on a luxury, £70,000 German saloon is slim.
You need to be realistic in your choice of vehicle and make sure it fits your circumstances. And you may need to sacrifice some niceties of the car you want for the one that’s right for you.
The length of the agreement
How long the car finance agreement lasts also plays a contributing factor in how much you can borrow for a car.
By taking the vehicle over a longer term, you pay less each month, although you usually pay more overall through higher interest.
So, if you’re worried about affordability, a longer-term contract may allow you to borrow more, meaning you can get a nicer car. It’ll probably also make your monthly payments more comfortable.
When a lender decides how much you can borrow and whether to accept you or not, they’ll also consider how much deposit you’re making.
Also known as an initial payment, a deposit is the amount of money you pay before you take the car away.
Typically, the more deposit you put down, the more you can borrow, as you’re actually borrowing less.
For example, if the car you want is £10,000, if you make no deposit, you’re borrowing £10,000. But if you make a £2,000 deposit, you’re only borrowing £8,000.
So, even though it’s the same car and the same price, there’s a higher chance of you being accepted for the £10,000 car if you make a deposit.
However, we understand that not everyone can or wants to make a deposit on their new car. That’s why all our vehicles come with a £0 deposit option.
The cost of running the vehicle
Another thing a lender will consider when deciding how much you can borrow for car finance is the running costs of the vehicle. And you should, too.
If your monthly repayment will put you on the very edge of your disposable income, or worse, a lender may not offer you the full amount.
And you also need to remember that when you get a new car, it’s not just the monthly repayment you need to consider.
There’s also the cost to insure, fuel, vehicle tax and maintenance. You can include some of these costs in your monthly payment with some of our vehicles.
So, how much can I borrow for a car?
Now you know what a lender will consider, it’s time to find out how much you can borrow for a car. And you can do it easily online without affecting your credit score.
Click the Apply Now button below, and within minutes we’ll be able to tell you whether you’ve been accepted for car finance and estimate how much you can borrow.
Then, when it comes to looking for a new car, you already know what’ll be suitable for your circumstances and what won’t.