How Much Can I Borrow for a Car Loan?

Before you start looking to buy a new or used car, you should find out how much you can borrow for a car loan and get your finance pre-approved.

Doing this will give you extra negotiating power with car dealers and private sellers because you can make an offer with confidence.  It will also save you time because you’ll be able to look at cars that are in your price range.

Read on to find out how much you can borrow for a car loan, including answers to FAQs.

How do banks calculate how much you can borrow for a car loan?

Banks refer to how much you can borrow for a car loan as your ‘borrowing power’ or ‘ability to service’ the loan. They calculate it by taking into account:

  • how much you can afford to repay,
  • the loan interest rate, and
  • the length of the loan.

Each of these factors influences how much you can borrow.

Car loan borrowing power

Let’s look at each one of the factors that influence your car loan borrowing power in more detail.

How much you can afford to repay on your car loan

This depends on your regular income and your regular expenses. If you have a high income and low expenses, the more money you’ll have available for car loan repayments. This will increase your borrowing power.  (Note if you declare minimal monthly expenses, the lender will likely set a minimum monthly living expense based on where you live and how many children you have -this is to ensure the borrower is not placed under any hardship.)

On the other hand, if you have a lower income and high expenses, you’ll have less money available for car loan repayments.  This will reduce your borrowing power. If you have a low income, high expenses (or both), you should:

  • reducing or eliminating your non-essential expenses,
  • reducing your debts by paying them down or off as quickly as you can, and
  • increasing your income if you can (for example, by getting a higher paying job or a promotion).
  • Ensuring you pay all your existing loan and credit card repayments on time (missed repayments indicate you may already be under financial stress).

Car loan rates

Loans with a higher interest rate reduce your borrowing power because they increase your repayments.

It’s important to also look at the comparison rate when looking at loan interest rates. The comparison rate includes the cost of standard lender fees and charges as well as the interest rate.


Loans with lower comparison rates increase your borrowing power because they lower your repayments.

You’ll qualify for a low comparison rate if you have a good credit score and you take out a secured loan. Lenders check your credit score when you apply for a loan. You’ll have a good credit score if you have a history of making all your credit repayments on time (this includes loan, credit cards, mobile phone accounts and electricity accounts).

But if you have a bad credit score, it’s still possible to get a car loan approved. But you’ll probably pay a higher interest rate. You can find out more about bad credit car loans here.


The length of the loan

Car loan terms in Australia are usually between one and seven years. You can increase your borrowing power by taking out a longer loan term. Longer loan terms lower your regular repayment amounts.

On the flip side, shorter loan terms reduce your borrowing power because they increase your regular repayment amounts. The table below illustrates this important point.

Note choosing a longer loan term will reduce your monthly repayments, but you you will pay more interest overall.

What is the minimum income for a car loan?

The minimum income for a car loan is the minimum amount necessary for you to afford your regular repayments after you’ve paid all your regular expenses. As mentioned earlier, you can reduce your regular repayment amount by increasing your loan term.


How can I get a car loan with little income?

It’s possible to get a car loan approved even if you have a low income. For example, if you’re receiving Centrelink income. The best way to do that is to demonstrate that you can afford your repayments. As well as increasing your loan term, look at non-essential expenses that you can eliminate or reduce. When you do, you’ll have more money available for loan repayments.

You can also increase your chances of getting a loan approved when you have a low income if you apply to borrow less. That might mean buying a less expensive car that’s more affordable.


How much can I afford for a car?

How much you can afford to borrow for a car depends on:

Car loan calculator – how much can I borrow?

A generic calculator cannot factor in aspects like what type of income you receive, your personal living situation, and what interest rate and repayments you’re likely to be eligible for.  You can find out your borrowing power by talking 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 the right advice. We’d also be happy to answer any questions you have.

Don’t let yourself get talked into finance arranged by a car dealer. If you do, you’ll probably end up paying more for your finance than you should.

Simply call 1300 301 051 during business hours to speak with one of our licensed and experienced car finance brokers instead. We’ll save you time and hassle by helping you find you a great deal from our panel of over 50 Australian lenders. We’ll also help you with your application so you can get it approved quickly.



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