Will Getting A Car Loan Affect My Mortgage?
There’s simply no getting around how important it is to have a car in today’s day and age. Quite apart from the freedom afforded by owning such a vehicle, there are excellent opportunities to make the car itself work for you and pay itself off, either by renting it out to somebody to drive, by starting your own business that involves driving somehow, or simply just by signing up for Uber or Lyft and making your own money on the side of your regular job.
And we hardly need to go into as much detail to describe how important it is to own a house. But what do these two major purchases have in common?
Well, unless you’re in the top 1% of earners, it’s unlikely that you’re going to one able to afford either of them off the bat. Just as you’re going to need a financing plan for your car loan in Toronto, so too are you probably going to need a mortgage agreement in order to make the repayments on the house you call your own.
Just as a majority of new cars are either loaned or leased with financing plans attached, so are the vast majority of houses sold with a mortgage agreement in place in order to make up whatever shortfall exists between the downpayment put towards the house and the overall monetary value of the property.
Mortgages Are Tough
Getting a house can be an incredibly stressful time for a lot of people. Even more stressful, we’re going to venture to say, than securing that first car loan in Toronto that you’ve been working towards. And far and away one of the most stressful aspects of buying a house is the mortgage agreement. But how exactly do lenders go about working out whether or not to give you a mortgage, or what kind of mortgage to give you? And will the car loan in Toronto you’re planning on getting affect the mortgage you’ll eventually end up with?
Lenders (typically banks when it comes to mortgages) examine a range of different things before they even put a mortgage offer on the table, and chief among those they consider first is the financing plan the buyer has in place for their car loan in Toronto. By looking at all aspects of your financial situation they attempt to create a fully representative picture of the buyer’s financial situation, including any financial obligations as well as the typical monthly expenditure, and then they take all of this consideration into account and decide on an about of money to lend you in order to finance the house.
The short answer to the question at the top of this article is yes, your car loan in Toronto is going to affect your mortgage application. This is even out of the lenders’ hands, to be completely frank about it: the law requires them to take an in-depth look at an applicant’s financial situation before ever even issuing an offer.
As well as the car loan in Toronto you’re working on paying off, they’re also going to take a good look at your credit rating and credit history, whether or not you’re employed—plus things like where you’re employed and how much money you’ve been making—on top of your record of paying back any outstanding debt you’re still dealing with, like student loans.
Debt, Debt, Debt
Technically speaking, the car loan in Toronto you’re financing is another kind of debt, so of course, it’s going to be necessarily included in the assessment the lenders make before they offer you a mortgage. Trying to predict exactly what any lender is going to consider most heavily is a fool’s game because they all operate independently and there’s no hard-and-fast guidebook they follow about how to assess each option.
But a general rule of thumb is that the more debt you still have to pay off in accordance with your car loan in Toronto, the less money you’ll wind up getting offered for your mortgage.
This makes sense, in an unfortunate kind of way. The more debt you have, the less likely you are to be able to manage a larger amount of new debt added on to the top. They’re not looking out for you, though: they’re trying to give themselves the best possible chance at getting their money back, plus interest.
This is exactly why actuaries are paid such high salaries. Figuring out, mathematically speaking, how much money they can lend while balancing that with the maximum amount of return these companies can expect, including interest, is at the very heart of the entire business. Your car loan in Toronto, taken into consideration in these terms, is definitely going to play a factor in the mortgage deal you eventually get offered.
But that’s not to say it’s necessarily going to stop you getting a mortgage full stop. If you’re sure you can afford both the mortgage fee as well as the monthly payments on the car loan in Toronto, then there’s no reason to think that the simple fact of having a car financing plan in place is going to be the sole reason you don’t get approved for a mortgage. On the other hand, if you can’t afford the repayments for both the property and your vehicle, you’re probably not going to get approved.
Know Your Limits
As with any decision that’s going to seriously affect your financial and personal life, you must know your limitations. We can’t stress this enough: people wind up in problems more often than not because they don’t know exactly what they can handle. It’s a shame because it’s so easily avoided by having a reliable, conservative budgeting plan and list of expenditures all worked out, but they don’t teach us how to do those things in school and as a consequence, by the time we’re trying to secure approval for a car loan in Toronto, we’re often left totally at sea as to how to proceed.
An example of not knowing the limits of your financial possibilities is if you apply for a sizeable mortgage at the same time as a financing plan for a car loan in Toronto that’s going to incur relatively high monthly payments.
If you’re wondering whether you’re going to be able to make the two commitments work within the framework of your current situation, it’s probably not a good sign. You should know for a fact if it’s going to be possible to keep up with both financing schemes or not—there shouldn’t be any room for doubt when it comes to such serious financial matters.
Make A List
The best piece of advice we can offer to you is to start keeping track of your monthly outgoing costs as soon as possible. The sooner you can get started tackling the mountain of information, the sooner you can work out what you’ll be able to reasonably afford, and the less time you’ll have to spend worrying about whether or not that car loan in Toronto you’re trying to secure approval for is a viable possibility.
While it is possible to apply for both house and car financing at the same time, we don’t recommend it even slightly. The reasons for this are basically twofold. For one, the more recent activity you have in your credit history, the less reliable you’re going to appear to lenders. What they’re looking for in a buyer (whether it’s for a car loan in Toronto or whether it’s for a house) is a stable, long-term history of acting responsibly with money, and coming good on the financial obligations the buyer in question has taken upon themselves.
Applying for two major financing plans within a short period of time is the very opposite of what they’re expecting to see in a successful applicant. Every single formal application appears on your credit report, and it’s not possible to just wipe the slate clean now and again. If you’re asking for financing a lot and getting rejected more often than not, that’s going to have a snowball effect, where each lender sees how the other lenders behaved with your application and that colours their own decision somewhat.
The other reason it’s not ideal to apply for a mortgage and car financing at the same time is that it’s essentially a lose-lose proposition. In the best-case scenario, you wind up with two large amounts of money you have to pay every month (depending on the precise details of the car loan in Toronto you end up securing, of course), which is going to majorly strain your bank account and could possibly even detract from other aspects of your life, not to mention all of the auxiliary stress that will inevitably result from taking so much onto your shoulders at once.
In the worst-case scenario, which is that you don’t get approved for either the house financing scheme or the car loan in Toronto, you get a long-lasting stain on your credit report that future lenders are going to be unable to avoid noticing. It’s potentially damaging to your long-term financial prospects, and unless you’re absolutely positive you’re in a situation that allows you to shoulder such a burden, we strongly recommend that you stay well away from asking for both financing schemes at once.
There is one thing you can do which can give you a better idea of if you’ll get approved or not, be that for a mortgage or for a car loan in Toronto. This is what’s known as an eligibility check. It’s a less permanent way to get an idea of whether or not you’ll be approved for the loan in question, because it doesn’t show up on your credit report, unlike the formal applications themselves.
Like everything, this has its positives and its negatives. While the fact that it won’t mark your card is a definite plus, the downside is that nobody performing an eligibility check will be able to give you a 100% answer about whether or not you’ll get approved for a car loan in Toronto, or for the mortgage plan. All an eligibility check can tell you is how good the state of your credit is: to find out for sure, you’ll need to go ahead and make a formal application anyway.
We hope that goes at least some way towards explaining the complicated ways car loans in Toronto can affect your mortgage. It’s not a straightforward topic, and the answer to your particular situation is going to depend on specifics that nobody else is privy to, so we’re loathed to give any kind of hard and fast answer.
If you’ve been struggling to secure approval for a car loan in Toronto on account of your credit score, you should probably give us a call here at autoloans.ca. Not only do we offer a range of different services for various scenarios that can result in a poor credit score, but we also consider every single application we receive, so it really can’t hurt to get in touch and find out if we can be of any assistance to you.