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What's A Car Loan Affordability Check In Woodstock?

What's A Car Loan Affordability Check In Woodstock?

Different lenders may call them different things but a car affordability check is part of the auto loan application process. They are designed to safeguard both you and the lender and are an essential part of responsible lending.


Our Woodstock auto loan team explains affordability checks and why they are important.


Auto loan affordability checks in Woodstock


Auto loan affordability checks are designed to make sure you can repay the amount of money you want to borrow. While lenders are in business to make money, they also want you to succeed, so this is an important part of the process.


Ever since the crash of 2008, lenders have had to approach finance differently. No more lending unaffordable amounts to people who couldn’t pay. That’s all gone.


Now it’s all about setting you up for success and making sure you don’t borrow more than you can afford to repay.


What’s in a Car Loan Affordability Check?


An auto loan affordability check looks at your income, your level of debt and the amount you want to borrow. For once, it’s a relatively simple calculation.


Lenders use your income and your outgoings to make sure you have enough left over to comfortably pay the loan without putting undue stress on your finances. If you have debt already such as credit cards, those factor into your outgoings too.


You can figure all this out yourself if you create a household budget. A column for income, another for outgoings and another for any debts you have. The amount left over is what a lender would use to see if you can afford the repayments on a Woodstock auto loan.


You can also use affordability calculators that are dotted around the internet. They will give you an idea of whether you’ll qualify for a loan or not. They aren’t exact but should give you an indication of whether you can afford the loan or whether a lender would likely agree the loan.


You won’t know more until you get preapproved but that’s later.


What is affordability anyway?


The challenge for the lender is to assess affordability using standard tools while taking into account the way we all live. For example, you may spend hundreds of dollars a month on eating out or entertaining. Another loan applicant may prefer to stay at home and read books.


That’s why some lenders will ask lifestyle questions if they are unsure about your affordability. They may ask how much you spend on leisure or entertainment per month or ask to see a couple of months’ bank statements to get a better idea of how you spend your money.


It’s not personal. It is to better assess whether you can genuinely afford the loan or not and actually has your best interests at heart.


Auto loan calculators can help but nothing beats a budget. It’s a simple way to manage your finance and to see your situation in black and white.


If you need help or advice on anything to do with auto loans in Waterloo, contact Car Nation Canada today, we can help!


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