Car loans can be a great way to unlock extra spending power and purchase the car you want sooner. The model is hugely popular across the UK, with the latest figures from the Finance & Leasing Association suggesting one in nine new car purchases are paid for using car finance.

While most people are eligible for car loans the amount you can borrow does depend on several key factors. It’s important to consider these when browsing for new cars and hashing out your budget. To help you get an idea of your personal borrowing power we’ve put together a detailed guide to calculating car finance.

Your credit rating

The role of credit ratings is often overlooked when applying for car finance loans. The reality is that credit scores play a hugely important part in determining how much car finance you qualify for. Like home loans, credit ratings are used by lenders to develop an idea of the type of borrower you are. They want to be sure you’ll pay back your debt which is why the process is so carefully vetted.

Ultimately, credit checks are used to determine how much risk is associated with offering you a loan. So how much car finance do you qualify for? Let’s take a look at some of the factors that can affect your credit rating:

  • Payment history

The first thing lenders will look at is your payment history. Even one missed payment can have a negative impact on your credit score so it’s best to stay on top of your debts, even if you’re making the minimum repayment. Regular credit card repayments are one of the best ways to improve your credit score and position yourself as a responsible borrower.

  • Current debt

While credit card debt can be a good thing when applying for a car loan, too much can jeopardise your chances. The trick is to never use more than 30% of your available credit. For example, if your credit card has a limit of £5,000 you don’t want to have a balance owing of more than £1,500. This ratio helps to position you as a responsible and cautious borrower.

  • Previous credit checks

What many borrowers don’t realise is that credit checks can leave a permanent signature on your credit history. Applying for finance can result in the lender carrying out an in-depth credit check, which can appear on your report for up to 12 months. Banks will often carry out hard checks when vetting applicants for credit cards, mortgages and personal loans. It pays to be cautious when it comes to hard credit checks as too many can imply you’re a higher risk applicant. Why? Because too many credit applications in a short timeframe can suggest you’re too reliant on borrowing or are in financial trouble.

Unlocking better interest rates

Not only does your credit rating affect the size of your loan, it can also influence what interest rates you’re eligible for. Applicants with good credit ratings are generally seen as low risk, meaning lenders are willing to offer them better interest rates. Similarly, applicants with low credit ratings are deemed a higher risk and can be penalised with higher interest rates. Applicants with less than desirable credit scores can also be hit with larger fees and charges, another financial hurdle to consider.

At My Car Credit we understand just how important credit ratings are. That’s why we carry out all our initial credit checks using a “soft” approach. Unlike hard checks, soft checks don’t leave a trace on your personal record. This means they can’t be seen by potential lenders and won’t paint you as irresponsible or financially unstable.

Your monthly repayment budget

Your monthly repayment budget will ultimately determine the maximum value of your car loan. When crunching the numbers and calculating your monthly repayment budget be sure to factor in any extra fees and charges that may be associated with your loan. This can include anything from administration charges to ‘balloon payments’ at the end of a Personal Contract Purchase (PCP) loan. 

Factoring in interest rates is also important. You need to ensure that your monthly interest rates don’t surpass your maximum monthly payment budget, or your loan will start to increase.

Calculating the length of your loan

The length of your loan will have a big impact on your monthly repayment responsibilities. For example, a loan of £3,000 over two years will require 24 monthly repayments of £125, not including interest and fees. The same loan spread over a five-year period would require monthly repayments of £50. While the cost of a five-year loan may seem lower, the longer term translates to additional interest. This isn’t necessarily a bad thing, though it is something to be aware of when calculating how much car finance you qualify for.

Using a car finance calculator

Wondering ‘how much car finance do I qualify for?’ In truth, there’s a lot to consider when applying for car finance, which is where a purpose-built calculator can really help. Developed by our team of car finance experts, the My Car Credit car loan approval calculator crunches the numbers for you.

Start with our at-a-glance car finance calculator that asks for your loan amount, preferred repayment term and credit rating score. For a more detailed estimate click ‘Apply Now’ and follow the prompts. Neither will impact your credit score and both are designed to help kickstart your car finance journey and get you in the driver’s seat ASAP.

Want to find out more? Get in touch with the My Car Credit team to discuss your application. With access to more than 25 lenders across all credit requirements, we have the knowledge and expertise to secure you the best possible car loans.

Rates from 6.9% APR. Representative APR 14.9%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score

Representative Example

Borrowing £7,500 at a representative APR of 14.9%, annual interest rate (fixed) 14.85%, 47 monthly payments of £204.69 followed by 1 payment of £214.69 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £2,335.12, total amount payable is £9,835.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!