How Does Honda Finance Determine Affordability for Repayment of a Loan?

When they consider any car manufacturer or Honda finance, Perth customers may not be aware of the decision making process. There are a number of factors that are taken into consideration to establish affordability. In this article, we will look at how a car financing company would determine whether a client could afford the repayments on a car loan.

The Issue of Budgeting:

Realistic budgeting is necessary to establish whether a client could actually afford car payments. Many people already have a personal budget in mind when they look into car loans and as admirable as this is, it is no guarantee of success. The issue that needs to be understood is that the car financing company has its own methods for calculating affordability and that may not mesh with your budgeting calculations.

Financing Company Calculations:

The lender has serviceability calculations to take into consideration, along with standard living expenses that are based on the Henderson Poverty Index (HPI). A set expense for living standards is deducted from your net income (after tax deductions). This is based on several factors, such as the number of children and your marital status. It may be the case that you are a very frugal person with a minimum of expenses. However, the adherence to the HPI standard doesn’t really take this into account, and some people don’t qualify for a loan as a result.

Is There any Wiggle Room?

It may be the case that you have a working partner that can mitigate your living expenses. In this instance, some lenders would request that the partner applies as a co-borrower on the loan to satisfy the requirements of the HPI expenses. This can become complicated as each lender may work with expense calculations differently.

What is Your Real Income?

This is another sticking point. A family may be receiving family tax benefits, and different lenders would treat this income in different ways. How much of this additional income is available for repayments and affordability purposes can vary. Other forms of income will also be affected, including pensions, rental incomes, dividends from shares and superannuation drawdowns. However, neither Youth or Newstart Allowances are accepted as a form of income for the vast majority of lenders. Always ask plenty of questions and loan protection insurance is recommended.

If they are looking for Honda car loans, Perth based drivers should contact us here at Prestige Honda. We have a diverse selection of both new and used cars for sale. We would like to invite you to join us for a no obligation test drive at your earliest convenience. We also offer Honda car finance at competitive rates with repayments that are tailored to your specific needs. Our sales team is standing by to offer additional advice on Honda finance details and to answer any other questions you may have.