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What is a car loan affordability check?

What is a car loan affordability check?

Applying for a car loan in Ancaster is an easy process. However, before the car finance is finalized, some documents and a few checks need to take place before the loan is approved.

One of those important checks is the affordability check.

Affordability checks are documents lenders look at, such as your rent and mortgage payment, tax, utilities, clothing, insurance, and other essential bills before granting you a loan.

The main aim of an affordability check is to see how much you have to spare from your monthly payment after all necessary bills have been settled.

How does an affordability check work?

In the past, lenders just took a look at your income to check your affordability ratio. That assessment has posed a lot of risk to the lender.

More stringent ways have now been put in place to check the affordability of borrowers. The affordability check in Canada is basically in two parts.

Your Income: The first thing a lender will check is how much money you have coming in if you are in full-time employment, and all these are known through your pay-in slips.

The lender also checks if you have any extra income coming in. The check would be more rigorous if you are self-employed, most especially if your income is not stable.

Your Payments: With the aim of the affordability check being to know the amount left after your monthly income, the lender needs to know how many bills you pay.

They also need to know how much you have going out monthly, from your mortgage bill to your insurance.

After your income is computed again, a convenient amount would be discussed for you to pay up per month from the balance.

Affordability vs credit score

When it comes to getting a car loan in Canada, your credit score is important in telling the lender how well you pay back the loan you got in the past.

However, affordability has the final say as it tells the lender that you are currently in the financial position to pay back within the stipulated time.

Does initial deposit affect your affordability check?

The initial deposit tells a lot about your affordability check. A larger initial deposit would significantly reduce your amount to pay back as well as your monthly payment, at the same time affecting your interest rate.

Can you get Ancaster car finance if affordability check is failed?

No lender will approve a loan application if they are not convinced you can pay it back at due time.

However, if you believe there is a chance of you meeting up with the payment, you can afford a car.

An option that can be considered is the use of a guarantor. A guarantor with a good credit score, which in most cases is the parent, would stand in the gap and ensure that payment will be made by them if you cannot pay.

This would give the lender a lot of confidence to approve the application.

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

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