Car Loan Eligibility – Key Factors to Consider in Australia
Buying a car in Australia but not sure about your car loan eligibility? You’re not alone.
With an average of over 3 million Aussies applying them to help finance their vehicles, knowing what makes you eligible for a car loan is the first step to owning a ride of your own.
Without first understanding what lenders look at to determine your car loan eligibility, securing one can be a confusing and frustrating process.
The good news is that at Credit One, we’re experts when it comes to the inner workings of car financing eligibility in Australia. We’ve connected hundreds of drivers to our extensive network of trusted lenders and helped them with their eligibility for a car loan.
To help you understand what it will take to ensure your car finance eligibility in Australia, we’ve laid out valuable insights on what will affect your eligibility in this article. After that, we’ll also present the different types of car loans and finance options available to you.
Table of Contents
- Factors that determine car loan eligibility
- What you’ll need to get a car loan in Australia
- Different types of car loans & finance available
Factors that Determine Car Loan Eligibility
- Credit score
To lenders, a high credit score is a sign that you have a track record of being responsible with your finances. It’s one of the biggest factors that affects your eligibility for a car loan.
In simple terms, your credit score reflects your financial behaviour and how well you have handled your credit cards, loans and bills.
2. Employment status
Lenders also consider your employment status when evaluating your car loan application. A stable job and a regular source of income signal to them that you’ll be able to make repayments on your loan.
If you happen to be self-employed, don’t worry. Chances are that you’ll still be eligible for a car loan, but you may be asked to provide documentation in order to demonstrate the stability of your income.
3. Income from employment
Speaking of income, how much you earn also contributes to your eligibility for a car loan. Lenders look at your income to check whether you’ll be able to cover your monthly loan payments comfortably.
Generally, lenders prefer that your debt payments, including the car loan, do not exceed 30 – 40% of your gross monthly income.
4. Debt to income ratio (loan serviceability)
On top of your car loan repayments, you may also have other debt obligations such as a mortgage or credit card payments. Lenders use a debt-to-income (DTI) ratio to check your ability to manage a car loan on top of your other repayments.
A lower DTI ratio will increase your car loan eligibility, as it shows that you have more room in your budget to take on a new car loan.
5. Amount required
Car loan eligibility in Australia is also impacted by the amount you want to borrow on the loan. Of course, if you’re asking for more money, lenders will be less inclined to lend to you.
6. Loan history
Your borrowing history with loans and credit will also affect your car loan eligibility. Lenders may examine your previous loan applications and repayment behaviour. If you have a history of missed payments or defaults, it could negatively affect your eligibility for a new car loan.
7. Can you afford the loan?
Brokers and lenders are legally required to assess your current financial situation, taking into account your income, liabilities and living expenses to determine if you can reasonably afford the proposed loan without putting you into financial hardship. We are also legally required to determine your requirements and objectives. For example, you may be a growing family, or your fixed interest might be about to expire. At Credit One, we take the time to ensure we assess your financial situation carefully to ensure you can afford your loan.
What you’ll need to get a car loan in Australia
Now that you have a better picture of what plays a part in your car loan eligibility let’s shift gears and take a look at what kind of documents you will need to provide when applying for a car loan.
1. Proof of ID (100 points)
To apply for a car loan, you will need to provide some proof of your identification. Lenders in Australia typically use a “100 points” system to assess ID, with different forms of ID worth different points. Examples of ID include a driver’s license, passport, birth certificate, and utility bills.
2. Proof of employment
You’ll need to submit proof of your employment, such as a letter of employment, recent pay slips, or tax returns if you’re self-employed.
3. Proof of regular income
In addition to proof of employment, you will also need to show evidence of your regular income, such as recent pay slips or bank statements.
4. Asset & liability statement
Lastly, you’ll need to prepare an asset and liability statement. This statement lists of your assets (e.g., savings, investments, real estate) and liabilities (e.g., outstanding debts, mortgages, credit card balances) to give lenders an overview of your financial circumstances.
You may be asked by your broker to provide additional information such as bank statements.
Different types of car loans & finance available
So, what options are available to you when it comes to financing a car? Let’s go over some of the different types of car loans and financing methods available to you:
1. Secured car loan
Secured car loans use your purchased vehicle as collateral, which leads to lower interest rates and terms. But be sure to make your repayments on time because, on this loan, the lender can repossess your car if you are unable to do so.
2. Private sale car loan
Buying from a private seller instead of a dealership? Private sale car loans are designed specifically for that. These loans can be secured or unsecured, and the interest rates may vary based on your credit and the lender’s policies.
3. Personal loan
A personal loan can be used for almost anything, including buying a car. It’s an unsecured loan, meaning you don’t have to use the vehicle as collateral.
Because of this, you may face higher interest rates for personal loans than compared to secured car loans, but they provide more flexibility in how you use the funds.
4. Chattel mortgage
Chattel mortgages are typically used by a business for purchasing a vehicle, with the business taking ownership of the car while the lender holds a mortgage over it. Interest rates and repayment terms can be customised to suit the business’s financial situation.
5. Finance lease
In a finance lease, you won’t actually own the car. Instead, the lender purchases the car and lends it to you for a fixed term. At the end of the lease, you usually have the option to purchase the vehicle, refinance it, or return it.
Wrapping Up
There you have it, the basics for your eligibility for a car loan in Australia. For a better idea of what kind of rates you can get, most lenders offer loan estimates when you provide them with your financial details. Of course, it’s important to remember that these quotes are just estimates.
Credit One can offer you an accurate quote for car financing options. Connected to a wide network of lenders in Australia, our car financing team has many years of experience successfully helping aspiring car owners like you hop into the car of their dreams. For more information about the car loan process or your car loan eligibility, speak to our team today.
