Car Loan Eligibility

If you’re thinking about applying for car finance, you’re probably wondering about car loan eligibility. This article explains everything you need to know before you apply, including answers to FAQs.


What is financing a car?

Financing a car involves borrowing the money that you need to buy it. There a two basic ways to finance buying a car:


1) Taking out a car loan with a lender.

This is the best way to finance a car, especially if you use the services of a car finance broker to help you to find a great deal. Car finance brokers work for car buyers. They can help you compare lenders to get a car loan for the amount you need so you can pay the seller directly, whether it’s a dealer or a private seller.


2) Getting finance through a car dealer.

This is not the best way to finance a car because it involves you getting a loan from a lender who has a relationship with the dealer. The finance terms and conditions will often favour the dealer more than you.


Am I eligible for a car loan?

You need to meet a lender’s approval criteria to be approved for a car loan. Different lenders have different approval criteria. Some are stricter than others.

That’s where a good car finance broker can save you time and hassle. They know the approval criteria of different lenders. They will take the time to understand your individual situation and they will know which lenders will be most likely to approve your car loan application.


Car loan eligibility

All lenders usually have at least three car loan eligibility criteria:

  • you must be at least 18 years of age.
  • you must be either an Australian citizen or permanent resident.
  • you must be able to afford your repayments (which involves proving your income).

Some lenders will also have additional requirements such as:

Lenders also have different eligibility criteria which affect the different interest rates available to you via their ‘rate card’ or ‘tiers’.  These criteria often depend on the age of the vehicle, your home ownership status, your credit score, and the Loan to Value Ratio.  A broker has access to the Lender rate cards, so can assess your situation to find you a great rate you are eligible for.


What do you need to finance a car?

The first two eligibility criteria mentioned above are black and white. You’re either over 18 or you’re not, and you’re either an Australian citizen or permanent resident, or you’re not.

If you can’t tick both of those eligibility boxes, you won’t get a car loan from a bank or finance company. It’s as simple as that.

Assuming that you can tick those two non-negotiable boxes, let’s look at all of the other car loan eligibility requirements (and potential requirements) in more detail.


Car finance requirements

Lenders in Australia are legally required to lend responsibly under Australia’s consumer credit protection laws. This means that they must be satisfied that you can afford your repayments before they approve you for a loan. You will have to prove the regular income you get. For example, by providing your most recent payslips or a statement from your employer.

Some lenders will be prepared to accept any regular Centrelink income (like family tax benefits) that you receive, while others won’t.


Secured loans

Most car loans in Australia are secured. This means that the car is used as the security for the loan. If you don’t make your repayments on a secured car loan, your lender can legally repossess your car and sell it to recoup the money you owe.

Secured car loans have a lower interest rate than an unsecured car loan because there is less risk to the lender.


Your credit score

Lenders will check your credit score when you apply for a car loan. This score is compiled by credit reporting agencies and is based on how much debt you currently have and your record of paying all your debts on time.

Debt can include obvious things like loans and credit cards, as well as less obvious things like your mobile phone or electricity accounts.

Some lenders will be prepared to approve you for a car loan even if you don’t have a good credit score, but others won’t. The ones that will approve you will usually charge you a higher interest rate. That’s because they will perceive you as having a higher risk of not making your repayments on time.

You can check your credit score for free online, and you can also take steps to improve a bad credit score if necessary before you apply for a car loan. This will increase your chances of approval for a loan with better terms and conditions. The higher your credit score, the better.



If you have a bad credit score (or no credit score because you’ve never borrowed before), a lender might require you to have a suitable guarantor to approve your loan. A guarantor is a person who agrees to become legally responsible for your repayments if you don’t make them.


How to apply for a car loan

You have two basic options when you’re applying for a car loan:

1) applying for a pre-approval

2) applying for an approval.

Either way, it’s important to get all the information you need before you apply. Let’s look at both options in turn.


Car loan pre-approval

A car loan pre-approval is a good idea to let you know how much you can borrow. This will help you avoid wasting time looking for cars that are outside your price range. You’ll usually need to supply the following information when applying for a pre-approval:

  • 100 points of ID (your driver’s licence and Medicare card will get you to 100 points).
  • proof of your regular income (if you’re self-employed, you’ll need your tax returns from the last two years).
  • a statement of your assets (what you own) and liabilities (and what you owe).
  • a budget showing how much you can afford for your regular repayments.


Car loan approval

If you don’t apply for a car loan pre-approval and you find the car you want to buy before applying for your loan instead, you’ll usually need to supply:

  • all of the information outlined above (100 points of ID, proof of income, a statement of your assets and liabilities, and a budget for your expenses and repayments).
  • Details of the vehicle you want to buy (its price, make, model, rego number and Vehicle Identification Number (VIN)).


How to get approved for car finance

The easiest way to get approved for car finance is to demonstrate that you meet all of their approval criteria. That can be tricky when you don’t know their approval criteria. That’s where a good car finance broker can help you.


The best way to finance a car in Australia

The best way to finance a car in Australia is to use a car finance broker. There are two major reasons why.


1) They work for buyers, not lenders.

They are on your side and will try to find you a great deal. A great loan deal can save you money because you’ll pay less interest and other lender fees.


2) They save you time.

Brokers understand the lending market. They know the approval criteria of different lenders and they know where the great deals are. They can help you avoid applying for a loan that you won’t get. It’s important to understand that every failed loan application can damage your credit score.


Other car loan eligibility FAQs

What is borrowing power?

Your borrowing power is the potential amount you will be eligible to borrow.


How can I increase my borrowing power?

There are a few ways to increase your borrowing power:

1) increasing your loan term.

For example, by applying for a loan with a 7 year term instead of a 5 year one. A longer term lowers your repayments and makes them more affordable, increasing your borrowing power.

2) increasing your income.

For example, by getting your partner to be a co-borrower with you.

3) decreasing or eliminating your non-essential expenses.

4) including a balloon payment in your loan.


What is a balloon payment?

A balloon payment is a larger, single and final repayment at the end of your loan. It fully pays off the loan and allows you to have lower regular repayments during your loan.

Can you still get approved for a car loan with bad credit?

Yes, it’s possible, but it will be more difficult and you’ll be charged a higher interest rate if you do. You should definitely talk to a car finance broker first to find out your options.


Can a personal loan be used to buy a car?



What’s the difference between a personal loan and a car loan?

A personal loan can be used for a range of different purposes (including buying a car). A car loan can only be used for buying a car.


Should you apply for a car loan with multiple lenders to improve your approval chances?

No, avoid doing this at all costs. Every unsuccessful application you make will damage your credit score. It’s like shooting yourself in the foot. Find a good car finance broker who will find you a lender who will be likely to approve your loan and then put your application in.


What is a chattel mortgage?

A chattel mortgage is a secured loan for a business asset (such as a car).  These loans are for businesses or employees using their vehicles for work use.


Is a novated lease a car loan?

No, a novated lease is an agreement allowing you to take possession and drive a car for a specified period of time in return for making salary-sacrificed lease payments.


How can you compare car loans?

You can compare loans by comparing their features, interest rates and other terms and conditions.  But a word of warning, unless you know about finance and you can understand all the fine print, you’re better off getting a good car finance broker to compare loans for you. You can read more about comparing car loans here.


Can you get a car loan for a used car?

Yes, but not all lenders provide used car loans. Those that do also usually have some restrictions on how old the car can be. Again, a good finance broker will know which lenders will approve loans for used cars and any associated restrictions.


Can you get a car loan for a private sale?



Is it better to pay cash or to finance a car?

This depends on your individual situation. You can read more about the pros and cons here.


How long does it take to get a car loan approved?
This depends on the lender and the quality of your application. If you’re a high-quality applicant, you can get approval in as little as a couple of hours.


How we can help

If you’re looking to get a car loan, talk to one of our expert brokers at Auto Car Loans. We’ll take the time to understand your situation so we can provide you with options from our panel of over 50 Australian lenders. We’ll also help you with your application so you can get it approved as quickly as possible.

We also have a car buying service. You simply tell us what you want and we’ll get you great price quotes.


Call 1300 301 051 during business hours to speak with one of our experienced brokers or buyers. We’ll save you time and hassle by helping you find you a loan (and a car if you want). We’re a one-stop shop!


We offer car finance services in the following locations: Car Finance Adelaide, Car Finance Brisbane, Car Finance Canberra, Car Finance Darwin, Car Finance Gold Coast, Car Finance Hobart, Car Finance Melbourne, Car Finance Newcastle, Car Finance Perth, Car Finance Sunshine Coast, Car Finance Sydney.



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