How to Calculate Joint Car Finance
Acquiring a new set of wheels can be an uphill task for many individuals with limited financial muscle. 😚 You have to dig deeper into your pockets to buy a better car that will serve you longer without running into many problems. The design, technology, safety, and engineering advancements are some of the factors influencing the cost of a particular car brand. Combined with inflation in global economies, these aspects contribute to the increased cost of buying a new car. And you might wish to "go green" too! But these cars can attract a bigger price tag. So hold on - you can maybe still buy that car you've been eyeing up for a long time - with a joint car finance arrangement! "How does it work?" you ask. 🤔
What Is Joint Car Finance?
Joint car finance is when two individuals sign a loan agreement to share the responsibilities of buying a motor vehicle. Spouses, couples and family members are the most common groups of individuals who enter into such a contract. They are considered as co-borrowers; hence they qualify for such an arrangement. Joint car finance has many benefits for individuals who choose this car ownership path, but it isn't devoid of its challenges. The loan terms are determined using a joint car finance calculator that shows how much the co-borrowers should have to set aside to repay the loan.
What Is a Car Finance Calculator?
If you are wishing to apply for car finance as co-borrowers you can us our online car finance calculator. This shows both individuals or co-borrowers illustrations of their monthly loan repayment terms, based on their loan amount and period over which they wish to spread the payments. The factors that influence the loan repayment terms are mainly: the total loan amount, and the time the co-borrowers want the agreement to last. Another important key determinant is the Annual Percentage Rate (APR). APR is a yearly interest on the sum that financial institutions or investors charge to their borrowers. It is expressed as a percentage that portrays the annual cost of funds over the term of a loan, in this case, a joint car finance loan. And it includes any charges set by the lenders. It's a very useful piece of information needed to determine the best deals overall, as it is calculated in a pre-determined way.
The periods offered vary and could be from 12 months to 24, 36, 48, and 60 months. You would want to consider the age of the car you are buying if considering a longer term and also remember that the longer the period you borrow over the more the total cost of the borrowing.
What Are the Usual Car Finance Loan Rates?
Car loan rates that lenders offer to individuals vary from one person to another. As explained above, the difference arises because different lenders have specific criteria for looking at borrower's financial situations. The usual car finance rates can range between 6% and 30% annual percentage rate.
A loan may have a low, medium, or high annual percentage rate. This will be largely determined by the borrower's credit scores - good credit scores will mean lower rates of interest. The borrowers can use the car finance calculator to have a good idea of the available finance options. Co-borrowers should note that the calculation shown by a joint car finance calculator will show Illustrative figures, and the final APR for the loan will reflect the credit scores of both of the parties. Getting an exact car finance quote will mean getting a personalised quote when you actually apply for the loan, and you specify the amount needed and the term over which you wish to borrow.
It is definitely worth checking both your credit scores before your application - refused car finance applications will involve a hard credit check which will leave a negative mark on your score. You can find out more about car finance applications and soft and hard credit checks here.
Can Car Finance Be in Joint Names?
Yes, car finance can be under joint names. Two individuals, usually partners or family members, can jointly apply to finance a car. The lender requires both individuals' details to facilitate the deal and process the repayment terms. It's always best to check if your preferred lender does joint finance, and then check whether their terms are favourable for your individual circumstances. For instance, some lenders require the co-borrowers to share an address for their joint car finance application to be successful. Carmoola doesn't currently offer joint finance but will be doing so in the near future so keep an eye out!
Usually the loan will be in the form of either a hire purchase agreement (HP) or a personal contract purchase (PCP). Check out the difference between HP and PCP here because there are quite a few differences. Either arrangement means that the finance provider has all the legal rights of the car until the loan is fully repaid - in the case of a PCP you will be required to pay an additional "balloon" payment at the end of the contract if you wish to transfer the car to your ownership.
As in any joint borrowing situation, both parties are legally responsible for repayments on the loan, but because the car is owned by the financial provider throughout the duration of the loan period, then any default in repayments could mean the lender could re-possess the car. It is really important to avoid this situation as this will negatively affect both your credit scores. Always speak to the lender in the event your situation changes and you have trouble meeting the monthly repayments - your lender may well be willing to reduce the payments and extended the loan period.
Who is the Registered Keeper of the Car ?
In a joint car finance agreement, the parties involved decide between themselves who will be the vehicle's registered keeper. This registered keeper holds the responsibility of looking after the vehicle. The responsibilities include:
- Taking the car for a Ministry of Transport (MOT) test
- Paying road tax
- Doing the repairs and maintenance
Can You Apply for Joint Car Finance With a Low Income?
One of the benefits of a joint application for car finance is that the lender will have two incomes to consider when deciding whether you can jointly afford to meet the repayments. Of course, you will have two lots of outgoings to take into consideration, paying only one set of household bills, such as housing costs and utilities. You will need to provide evidence of both sets of income and outgoings, and some lenders will use a system called "open banking" to gather this evidence without your having to send it to them. Carmoola uses open banking, which helps us to decide upon the affordability of the proposed loan really quickly - and it's all done within our app.
What Are the Pros of a Joint Car Finance?
Adding a co-borrower to a car loan has the following advantages for an individual:
- Combining incomes: If you can't afford to have a car, you can enlist the help of a co-borrower to combine your incomes. When you combine them, it is much easier to get enough money to qualify for the loan.
- Qualifying for a bigger loan: Your co-borrower's extra money gives you room to apply for a larger loan, hence a better vehicle.
- Getting a reduced interest rate: You stand a chance of qualifying for a lower interest rate when your co-borrower has a better credit record than you. Therefore, you can save on interest charges when adding them to the loan.
What Are the Cons Associated With Joint Car Finance
When you take out a joint car finance loan, you and your co-borrower are responsible for servicing the loan to the end of the contract. You become financially linked, so any wrong financial move you make will affect you both. For example, if either of you defaults on the loan repayment, both your credit scores are negatively tainted. Even if your past credit file has been relatively clean, such an event will affect your future credit score.
Bottom Line
Joint car finance can be a useful option if you wish to combine your two incomes to enable you to get a better car than you could otherwise afford on your own. You can enter into a joint car finance contract with your either your partner or a trusted family member and get the car. There are various platforms like Carmoola, where you can access a car finance calculator to help you understand better how much you will need to repay. But do bear in mind the consequences of joint borrowing if things don't go to plan in the future and be aware of the financial commitment for both of you.
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