Net Income

Meaning and Definition

Net income, in the context of car finance, refers to the amount of income an individual or business earns after deducting taxes, expenses, and other deductions. It represents the actual income available for personal or business use. Net income is a key factor that lenders consider when assessing an individual's or business's financial capability to afford car finance payments. It provides an indication of the borrower's ability to meet their financial obligations.

Why it is important to know

Understanding net income is essential when applying for car finance, as lenders typically evaluate an individual's or business's income to determine their repayment capacity. Lenders compare the net income to the proposed monthly payments to assess whether the borrower can comfortably afford the car finance arrangement. It is important for borrowers to have a clear understanding of their net income to ensure they choose a car finance option that fits within their financial means.

Example in car finance

Suppose an individual applies for car finance and provides their net income of £3,000 per month. The lender reviews the net income along with other financial factors to assess the individual's ability to make the monthly car finance payments. Based on their evaluation, the lender determines that the proposed monthly payment of £500 is affordable for the borrower, as it represents a reasonable portion of their net income.