A mortgage loan can have impact on your new car loan in a number of ways. Firstly, when you apply for a mortgage loan, the lender will make a hard inquiry on your credit report which causes your credit score to drop. If you have high credit score, this is nothing to worry about. For example, if your credit score is 720 and it reduces your credit score to 718, you will still not fall below the lender’s minimum credit score requirement.
Your punctuality in making on time repayment to the mortgage loan is another factor that can affect the new car loan that you want to apply. If you arelow-interesting repayment, your credit score will drop which will make it harder for you to a qualify for a good car loan with low interest rate. It is important to always pay your mortgage every month so that you have good track record of payment history up until the time you apply for the car loan.
Besides, the mortgage home loan you take out must not push your debt to income ratio to more than 43%. If your debt to income ratio exceeds 43%, you may face problem in getting approved for a new car loan. Debt to income ratio represents how much is your existing debt versus the income that you have. You must make sure that you have a lot of leftover income after paying the mortgage. The more leftover income, the higher the borrowing power you have and the more money you have to pay back the new car loan.
You should avoid applying for a large mortgage if you are planning to get a new car loan in the near future, for example in 6 months. This is because larger mortgage tends to have more impact on your credit rating and debt to income ratio. Another reason why you should avoid taking out a large mortgage is that it is harder to repay. If you fail to repay your mortgage, the house can be repossessed and it will result in a black record on your credit profile. When the auto loan lender sees the black record on your credit profile, they may increase the interest rate or reduce the amount of car loan that you can approved.
Although a mortgage can affect your ability to get a car loan, or any loan for that matter, it can also help you to build up your payment history. It is important to have some payment history before you apply for the car loan. Making repayment on the mortgage promptly can also help in raising your credit score if you currently have a poor credit score. Making repayment on time for 6 months to 1 year can effectively help you to raise your credit score. Once your credit score is increased, you can start shopping for a low interest car loan.