If you’re researching Welland auto loans, you’ll come across the term ‘car loan affordability check’ quite a lot. It’s something every lender now has to perform and something that actually works in your favour.
Our Welland auto loan team explains everything you need to know about affordability checks.
Car Loan Affordability Check
Ever since the financial crash of 2008, lenders have had to perform due diligence to make sure every borrower can afford to repay the amount they want to borrow.
It affects all lending, from credit cards to mortgages, business loans to auto loans.
While it may seem like a barrier to you getting what you want, affordability checks are actually there to protect you.
How does a car loan affordability check work?
For once, the principle is actually very simple. The lender looks at your total income per month, subtracts all your outgoings and looks at what’s left.
If you can comfortably afford the auto loan payments from what’s left, you pass the affordability check. If the loan is borderline or doesn’t cover the payments, you may fail the check.
Different lenders approach them slightly differently but that’s the basic premise of affordability checks.
This is why you’re asked to provide bank statements and list all your outgoings in a loan application. The underwriter can then see exactly what you have coming in and going out and can make the check.
Improve your chances of passing a car loan affordability check
There are a few ways to increase your chances of passing an auto loan affordability check.
Pay down existing debts – If you already owe money, the payments will be deducted from your income. The more you pay out each month, the lower that spare cash amount is and the lower the chances of being accepted. Paying off debt will fix that.
Borrow less – Opting to borrow less in the auto loan is also a way to pass. Borrowing less means lower monthly payments, which means a higher chance of passing affordability.
Larger down payment – A larger down payment also lowers the overall amount and the monthly payment which can achieve the same goals as borrowing less.
Get more income – Easier said than done we know, but it’s a legitimate way of putting more money in the income column.
Use a coborrower – Having someone come in on the loan with you can also help you pass. They will have legal title to the car and will have part ownership but their income is taken into account as well as yours.
Affordability checks are another hoop to jump through when applying for auto loans but they are there to protect you. The intent is to make sure the loan won’t put you into financial difficulty and to ensure you can comfortably pay it off.
That’s as much to benefit you as the lender!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
For any questions or concerns, please don’t hesitate to contact us here!