Car Finance for Pensioners
Just because some or all your income is from a pension, it doesn’t mean you should have to make do without the independence, flexibility and security that a reliable car provides.
This guide explains the options for financing a car in retirement, including when you are drawing an age pension. The information will also be helpful to people on disability support, parenting or carer pensions.
Can a retired person finance a car?
Retirement should be a time of life when you can indulge your interests, get to your appointments easily, go out to meet friends and have the freedom to live the lifestyle you want. Car ownership helps provide these opportunities and independence.
If you’re reading this, you are probably already weighing up the pros of being able to buy and use the car now against the cons of coping with an ageing car or making do without a car at all while you try to save up.
Getting the cash together to buy a reliable vehicle can be a challenge. A loan may be a better option.
You may be wondering whether a retired person can even obtain finance to buy a car. The answer is yes! Some Lenders will accept pension and superannuation income when assessing your suitability for a loan.
Lenders decide to offer a loan based on whether they think you can make the repayments over the loan period. For a car loan, that’s usually 3, 5 or 7 years.
If you have the income and/or funds to make the repayments, and an acceptable credit history, then there is little to get in the way of you obtaining a car loan.
Your pension counts as income. So does money from superannuation, part-time work and any investments you might have.
Choosing the right car
It’s important to choose the right car for your needs and lifestyle.
Features versus costs
What do you need your car to do for you?
- Do you mainly do short trips around town for shopping and social activities?
- Do you like road trips on the weekends?
- Do you plan to venture away from home for weeks at a time, exploring the country?
- Do you need to take pets with you?
- Do your hobbies need special features — to fit in a set of golf clubs, tow a boat, or comfortably seat your social or sports club friends?
A small, economical car will probably be best if you live in a city or town and most of the time you just need to get to the shops and back. On the other hand, if you plan to spend weekends away at your favourite beach town or in the outback, then a vehicle with more power and comfort for long trips will be a better choice.
Of course, budget has to be a major consideration. We all need to balance our desires and our finances. When buying a car, cost means not only the sticker price, but also stamp duty, registration, insurance, fuel and maintenance. Small cars usually win on all of these factors.
Also think about the availability of parts. A European vehicle might be very appealing, but are you prepared to wait for weeks or even months for a spare part should something break? Mainstream vehicles have better parts availability and give you the convenience of getting back on the road quickly.
New or used?
There is nothing quite like the feeling of a new car. You get all the latest features for safety and comfort. With the long warranties available now, you can enjoy peace of mind that if there is a manufacturing problem with the car, it will be covered. The ACCC has published some useful tips on buying a new car.
On the other hand, it is commonly said that new cars lose 15% of their value as soon as you drive them out of the dealer’s lot. Then they lose another 15% over the first year of ownership.
It might make sense to let someone else take that initial hit. You can benefit by buying a low-kilometre, used vehicle in good condition much cheaper than new. You may also enjoy the balance of the new-car warranty.
A good used car can provide many years of reliable service, but there is always a risk the car may develop problems. Dealers will offer a short warranty with an older used car, but private sellers will not provide any warranty at all. It always pays to check warranty details.
Ultimately, your choice of new or used depends on your individual circumstances, needs and budget.
Can you get a car loan on the pension?
Provided your income, after your normal living expenses, is enough to support the repayments, then you can get a car loan when you are receiving a pension.
If your pension is your only income, you will probably need to look at lenders other than the main banks. Credit unions and specialist lenders can help. A car finance broker, in particular, can connect you with a suitable lender and help you with your loan application.
Car loans for pensioners
In most ways, car loans for pensioners are similar to any other car loan.
You’ll need to go through an application process. You will need to pay an upfront fee. Then, of course, you will need to make regular repayments, including interest, over the course of the loan.
You can get an estimate of your repayments from a loan calculator. To use it, you’ll need to have some idea of the amount you need to borrow, the loan period (usually 3, 5 or 7 years), the interest rate and the fees. This won’t be terribly accurate, because your fees and interest rate always depend on how a lender assesses your application, but it might help you understand roughly what your repayments will be.
Another key thing to be aware of is Secured Car Loans versus Unsecured Car Loans (often referred to as Personal Loans):
- Secured versus unsecured
A secured loan is one where you offer an asset as security against you defaulting on the loan. That could be the car you’re buying or some other asset you own. If you fail to repay the loan, the lender can take the asset and sell it to recover their money. Providing security for a loan reduces the risk for the lender. It improves your chances of getting approval for the loan and you can usually get a lower interest rate as well.
Later in this guide, we provide some more things to think about if you decide to take out finance to buy a car.
Can I get car finance on the pension?
So far, we’ve established that a person receiving a pension, including a retired person, can finance the purchase of a car. You may be wondering whether you can get car finance.
What will a lender look at?
A lender will examine your ongoing expenses, as well as the costs of owning your new car. They will look at your individual circumstances, such as whether you own your own home or pay rent. They might also use statistical averages to work out what your expenses are likely to be.
You’ll need to let them know your income, assets and expenses, and you’ll need to provide a few documents to support your application. They’ll also need to know the type of car you want to buy, whether it’s new or used, and the price range.
What if you have a poor credit history?
There’s specialist lenders who will consider offering you a loan even with a poor credit history. You will need to provide more information with your application, you will face a higher interest rate and you will probably have to agree that the car or some other asset will be offered as security.
A better approach is to improve your credit score. Some tips to improve your credit score are:
- check your credit history and make sure any errors or outdated information are corrected
- reduce your credit card limit
- pay your bills and debts on time
- spread new credit applications over as long a time as possible.
What else do you need to think about?
Alongside the lender’s assessment, you need to make a realistic and sensible decision about what you should spend. You don’t want to have to compromise the rest of your lifestyle.
Make sure you will be able to:
- meet your usual expenses
- have some money in reserve for the unexpected
- keep up the lifestyle you want, including having money for special occasions
- meet the costs of running the car, including insurance, registration, maintenance, fuel and the loan repayments.
You should also think about the costs of not buying a car:
- Are you always spending money on repairs to keep your old car on the road?
- Do you have to resort to taxis, Uber or other ride-share services to get around?
Most importantly, you should ensure you are informed about your finance options. Not all of them are good.
Pensioner finance at car yards
Car dealers will usually promote their finance package to you, along with add-ons like repayment insurance. While it can seem like an easy way to finance and buy the car in one place, dealer finance is poor value.
Dealers receive substantial commissions when they sign up new customers to finance contracts. Ultimately, the cost of paying this dealer commission is reflected in the cost of your dealer-arranged loan.
You are much better off to organise finance before you negotiate the car price with the dealer. You can avoid the uncomfortable pressure tactics at the dealer, and you can usually get a better deal.
Cheap car loans for pensioners
To get a better loan than car dealer finance, you have two options. You can:
- do the legwork yourself, researching on the internet, speaking with different lenders and working through the terms and conditions of each option, before filling out and lodging an application, or
- get a car finance broker to find the best deal and manage the loan application on your behalf.
If you plan to do the work yourself, the car loan advice published by the Federal Government will help you learn what you need to think about and what to compare.
The easiest way to find out whether you can get a car loan is to get in touch with a car finance broker.
A car finance broker is an agent who does the work for you to find the best loan for your circumstances from a wide range of lenders. You can obtain a pre-approval so you know exactly what you can spend.
Brokers can also access wholesale rates that are cheaper than you can find as an individual.
Because they are specialists, car finance brokers:
- have organised plenty of car loans for people on the pension
- know the requirements of a wide range of lenders
- will be able to advise you of your ability to get a loan
- can find a great deal for you
- can manage the application process for you.
How we can help
If you’re on the pension and need finance to buy a new or used car, talk to our experienced brokers at Auto Car Loans. We’ll take the time to understand your financial circumstances before finding you a great deal.
We arrange vehicle finance for a living from a panel of over 50 lenders. We work for our clients, not for lenders.
Get in touch with one of our expert vehicle finance brokers today by calling 1300 301 051 during business hours.
We’d love to hear from you and we’d be happy to answer any questions you have.
DISCLAIMER : The thoughts and opinions conveyed on this website are those of the authors only and are of a general nature. This does not constitute financial or general advice to you from Auto Loans Group. You should seek your own independent advice from a professional which is specific to your circumstances before considering any of the items referred to in this article, including finance, insurance, and car buying.