Car loan eligibility requirements
If you’re in the market for buying a new or second hand car, you have two main things to organise:
- The type of car you want to buy
- The money to pay for it.
Read on to find out everything you need to be eligible for a car loan.
What Makes You Eligible To Finance A Car?
The main thing any lender will assess on your car loan application is your ability to pay back the loan. You must have a steady income and be able to afford your regular repayments, which are usually monthly.
You will need to provide evidence of your regular income, such as pay slips from your employer or bank statements if you’re self-employed and looking for business vehicle finance. You also need to be an Australian citizen or permanent resident.
Different lenders have different approval criteria. Some lenders will be prepared to lend you more than others based on your current financial situation. Some may even be prepared to accept any regular Centrelink income you receive when assessing your ability to make your loan repayments (for example, the family tax benefit).
Should You Get A Car Loan Through A Car Dealer?
No, it’s almost always more expensive than arranging a car loan through a finance broker like one of our experienced team at National Loans.
It is the job of a car finance broker to work for you, the car buyers, not car dealers. They search the market for the best deals available to save you the time and hassle of researching the car loan market yourself. There is a huge range of lenders in the car finance market.
Car finance brokers also know the different approval criteria of different lenders, so they will be able to advise you which lenders would be the most likely to approve your application.
You will generally be eligible for lower interest rates if you have a good credit score. Lenders will check your credit score when assessing your car loan application.
If you have a good record of repaying all your debt on time (including credit card, mobile phone and electricity payments) and a low level of debt, you will have a good credit score.
If you don’t have a good credit score, your application may be declined or you may be asked to provide a guarantor for your car loan to be approved. You may also be charged a higher interest rate.
Can You Apply For A Car Loan For A Private Sale?
Yes, but not all lenders will allow this. This is another reason why it’s good to check with a car finance broker because they know the lenders who do.
You can often get a cheaper second hand car if you buy privately because you are not paying a dealer to act as a middleman.
Should You Apply For A Secured Or Unsecured Car Loan?
Secured loans have lower interest rates than unsecured car loans. A secured car loan requires you to provide the vehicle as security for the loan. The lender will register their interest in the vehicle on the Personal Property Securities Register (PPSR). This means that the lender can legally repossess and sell your car if you don’t make your loan repayments.
Lenders cannot do this on unsecured car loans, but they will charge a higher interest rate to compensate for the increased risk of lending you the money you need.
How Old Can A Car Be For A Car Loan?
Different lenders have different approval criteria based on the age of the car you want to buy and the length of the loan term you want to take out.
For example, some lenders won’t approve loans for cars that are more than 10 years old, or if they do, they will require you to fully repay the loan over a shorter term. Shorter loan terms have higher regular repayment amounts.
Standard car loan terms in Australia range from 1 to 7 years.
Can You Apply For A Car Loan Pre-Approval?
Yes, and it’s a smart idea to do that for two reasons:
- You will know the price range of the car you can afford so you don’t waste time looking at vehicles outside that range.
- It will give you negotiating power with sellers. You will be able to make a pre-approved finance offer, which is always more attractive to a seller than if your offer is ‘subject to finance approval’.
How To Apply For A Car Loan
Whether you’re applying for a loan before or after you’ve found the car you want to buy, you can apply online. If you have all your financial information handy, it takes less than 5 minutes and you can get approval within 24 hours if you’re eligible.
Other car loan FAQs
What is a comparison rate?
Should you get a fixed or variable rate car loan?
There is no right or wrong answer to this question. It depends on interest rate movements over the term of your loan.
Variable interest rate car loans (and their regular repayments) rise and fall in line with market interest rate movements.
On the other hand, fixed interest rate car loans (and their regular repayments) remain the same regardless of rises and falls in market interest rates.
If fixed rates are higher than variable rates when you are looking at car loans, it means lenders expect interest rates to rise in the future.
What is a balloon payment?
A balloon payment on a car loan is a larger final repayment that’s usually only available with fixed rate car loans. It allows you to make lower repayments during the loan term. The larger your balloon payment, the lower your regular repayments will be (and vice versa).
Do you need a deposit for a car loan?
No, you can borrow the full amount if necessary. We’ve created a handy calculator so you can see how much you’re able to borrow for your next car.
Yes, and it’s a smart idea to do that for two reasons:
- Buy a cheaper car so you need to borrow less
- Save a deposit so you need to borrow less.
- Take out a longer loan term (for example, 7 years instead of 5 years)
- Include a balloon payment in your car loan.