Key Takeaways
- Car loans are a type of financing specifically designed to purchase a vehicle, whether for personal or business use.
- To apply for a car loan, start by comparing lenders, checking your credit score, gathering required documents, and submitting an application.
- Lenders typically require ID, proof of income, assets and liabilities, residency status, car details, and a good credit score.
- To find the best car loan for you, assess your financial situation, compare lenders, and seek professional advice if needed to secure favourable rates and terms.
Getting a car can be a game-changer, whether you’re using it for personal or business purposes. You can do more, get farther, and achieve goals with the right car. However, it is a significant investment, one that many can’t fully pay for upfront. That’s why car loans are the go-to solution to finance this expense.
Here’s our guide to car loans—whether you’re buying your first ride or looking to upgrade, it pays to know how vehicle financing works and how to find a loan that’s best for your needs.
What is a Car Loan?
A car loan is a type of financing designed specifically to help you purchase a vehicle, whether brand new or used. Typically, the loan is secured against the car itself. Once the loan is approved, you agree to pay it back over a set period with interest. Car loans in Australia are available from banks and non-bank lenders, with varying interest rates and terms that range from 1-7 years. A personal car loan is for when you want to buy a car for your own use. Meanwhile, you can get a commercial car loan to buy a business car or expand your fleet.
How to Apply for a Car Loan in Australia
Applying for a car loan in Australia is a relatively straightforward process. Here are the steps to follow:
1. Research and Compare Car Loans
Before applying, start by comparing the options available in the market. Each lender offers different loan terms, interest rates, and conditions. Pay close attention to:
- Interest rates: Look for lenders with lower rates that ensure you pay less over the life of the loan.
- Fees: Consider upfront fees, charges, and penalties before committing to a loan.
- Loan terms: Longer terms mean smaller monthly repayments but higher total interest.
- Deposit: Take note of whether a lender requires a deposit and how much.
2. Check Your Credit Score
Lenders assess your creditworthiness before approving a car loan. A higher credit score can result in better interest rates. If your credit score is low, consider taking steps to improve it before applying. You can pay off existing loans and check your credit report for possible errors that keep your score low.
3. Gather Requirements
The application process requires specific documents, which vary per lender. These may include identification, proof of income and residency and details about the car you’re purchasing. Get everything ready before applying to make the process smoother.
4. Submit Your Application
You can apply directly through a lender’s website, at their branch, through a broker, or a car dealership. Ensure all your information is accurate and all requirements are ready to avoid issues.
5. Get the Keys to Your Car
Once the loan is approved, sign the agreement and get the keys to your brand-new car. Ensure that you repay your loan on time to avoid losing your vehicle.
What are the Requirements for a Car Loan in Australia?
When getting a car loan, lenders assess your ability to repay the loan. Here are the typical requirements:
Identification
To apply for a car loan, you need to provide identification like a passport or a driver’s license. The lender needs to know basic information like your name and age.
How old do you have to be to get a car loan in Australia? You must be at least 18 years old to apply for a car loan. However, meeting the minimum age requirement does not guarantee approval. Young borrowers often need to show proof of income (full or part-time) to be approved.
Proof of Income and Employment
Lenders will look at your employment and income to gauge your ability to make repayments. They need to see that you have a stable source of income. This often includes proof of employment or regular income through bank statements or payslips.
Assets and Liabilities
Lenders assess your overall financial position, including any assets (e.g., property or other vehicles) and liabilities (e.g., credit card debt, existing loans). This evaluation helps lenders measure your debt-to-income ratio, ensuring you can manage another loan on top of your existing obligations.
Residency
Most lenders require you to be an Australian citizen or permanent resident to be approved for a car loan. Temporary residents may qualify, though approval may vary by lender.
Credit Score
Credit score requirements will vary per lender, but having a good credit score and history increases your chances of loan approval and may unlock better rates.
Details About the Car
Lenders will require information about the car you’re purchasing, including its registration, year, make, and model. You will also need to provide an invoice from the dealer or a contract of sale.
Can Students Get a Car Loan in Australia?
Yes, some lenders do let students get car loans, provided that they are 18 years old and above. Some lenders offer car loans specifically for students, and you don’t need a high income to get approved. You only need to prove that you have a regular income, whether through a full-time or part-time job. It’s important to note that if you’re a student aged 18-21, you may not be able to get approved for large loan amounts.
Do I Need to Pay a Deposit for a Car Loan?
Some lenders may require a deposit, usually around 10-20%. However, there are plenty of lenders that don’t require it. There are good reasons to still pay a deposit, though—the bigger the amount, the better. Here’s why:
- Improves Approval Chances: Many lenders view borrowers with a deposit as lower risk, as it shows financial commitment. This can be particularly helpful if you have a lower credit score or limited credit history.
- Reduces Monthly Repayments: A deposit reduces the amount you need to borrow, which can lower monthly payments and make the loan more manageable.
- May Unlock Better Rates: Lenders sometimes offer better interest rates to borrowers who pay a deposit since doing so reduces the lender’s risk.
How to Get the Best Car Loan in Australia
Everyone wants to get the best car loan possible for their situation. How do you find the best lender and score good rates and terms? Here’s how:
Assess Your Situation
Before looking at loan options, determine your budget, including what you can afford for a deposit and monthly repayments. It’s also important to factor in how much you’re going to spend on the upkeep of a car and see what you can realistically pay monthly in repayments on top of that.
Compare Lenders Thoroughly
Make the extra effort to compare lenders. Don’t settle for the first offer you get. Shop around and look specifically for low rates, favourable terms, flexible repayment options, and good loan features. Reading reviews and seeking recommendations can also help you find trustworthy lenders.
Consider Professional Advice
If you’re unsure which loan is best for you or if you don’t have the time to compare lenders yourself, consider consulting a broker. They can guide you through various lender options and help you find a loan that fits your situation.
Final Thoughts
Getting a car loan in Australia can be a smooth process with the right preparation. Whether you’re a first-time car buyer, a student, or someone looking to upgrade your vehicle, comparing your options and understanding the loan requirements will help you find the best deal.
Remember to research lenders, check your credit score, and gather all necessary documentation before applying. If you’re unsure about your options, consulting with a financial expert can provide tailored advice for your situation.
Get The Keys to Your Dream Car
If you need a car loan in Sydney, Melbourne, Brisbane, or anywhere in Australia, reach out to us to get personalised advice. We'll help you find the loan that works best for your needs.
