If you have other loans or debt payments, it’s essential to understand how they can affect your ability to manage or obtain asset finance. Here are the key considerations:
- Debt-to-Income Ratio (DTI) – Lenders assess your overall debt obligations relative to your income. A high DTI may reduce your chances of approval for additional financing. If approved, lenders may offer less favourable terms, such as higher interest rates or a smaller loan amount.
- Impact on Credit Score – Multiple loans can affect your credit score, particularly if you miss payments or have high outstanding debt. Lenders will check your credit history to see how well you manage existing debt.
- Loan Affordability – Assessment Lenders are required to assess whether you can afford new debt, considering your existing loans and regular expenses. If your disposable income is limited due to other debt payments, it could impact your eligibility for asset finance.
- Refinancing Options – You may consolidate other debts (e.g., through a personal or business loan) to reduce your overall monthly payments, making it easier to afford new finance. Some lenders offer to refinance existing loans, potentially reducing your interest rate or extending repayment terms.
- Loan Structuring – If you already have multiple financial obligations, lenders may tailor the asset finance terms to reduce the risk of over-indebtedness. For example: Longer repayment periods for lower monthly payments. Balloon payment structures (lower payments during the term, with a lump sum due at the end).
- Business vs Personal Debt – If you’re applying for business asset finance, lenders typically focus on the business’s financial performance rather than your personal debt. However, if you’re a sole trader or using a personal guarantee, both personal and business debts may be considered. It’s important to separate personal and business liabilities to prevent debt from one side affecting the other.
- Default Risk and Loan Priority – If you struggle to manage multiple loans, missing payments on any debt can increase your risk of default. Asset finance agreements often have a secured structure, meaning the lender can repossess the financed asset if you fail to make payments.