Low Income Car LoansDo you have limited income and need a car? It’s possible to get a low income car loan if you know how to go about it.
Read on to find out everything you need to to know about low income car loans, including answers to FAQs.
What is a low income earner?
Low income earners are usually classified as earning less than the average wage in Australia. But according to the latest figures from the Australian Bureau of Statistics:
- the average full-time wage is now just over $90,000 per year ($1,737.10 per week).
- the average wage of both full and part-time workers combined is $67,902 per year ($1,306 before tax).
If you nearly choked reading those figures, it’s important to remember that they can be heavily distorted by a small percentage of high income earners who earn massive salaries.
The Australian Taxation Office on the other hand makes a full $700 low income tax offset available to anyone earning less than $45,000 per year. This $45,000 figure is closer to what most lenders would regard as being low income earners in Australia.
People who are getting Centrelink payments usually have to pass a low income test to qualify for those benefits. And it’s possible to get a low income car loan even if Centrelink payments are your sole source of income. For example, if you’re receiving unemployment benefits, the age pension, a disability pension or family tax benefits.
You can find out more about getting a car loan if you’re currently getting Centrelink payments here.
Car loans for low income earners
Car loans for low income earners are available from some lenders in the Australian car finance market, but certainly not all. It’s worthwhile asking for advice from a good car finance broker to find out which ones do.
Car finance brokers arrange vehicle loans for a living. They know the lending criteria of different lenders and a good car finance broker will take the time to understand your situation before connecting you with the right lender (a lender who will be more likely to approve your low income car loan).
What is the minimum income for a car loan?
There is no specific minimum income for a low income car loan. The main things a low income car loan lender will assess when considering your application will be:
1) whether you have enough income to be able to afford your regular repayments without hardship, and
2) whether they are confident you will make your repayments on time.
Let’s look at both of these criteria in more detail.
Can you afford your regular repayments?
This obviously depends on how much spare income you have. Car loan repayments are usually monthly, so most lenders will require you to do up a monthly budget of your income and expenses.
The income you have left over each month is the amount you’ll have available for your car loan repayments. The more you have available, the more you’ll be able to afford to pay (and vice versa). You should try and eliminate or at least minimise any non-essential expenses so you have more money available for your repayments.
Once you’ve done that, there are three main ways you can lower your vehicle repayments:
1) borrow less
In other words, buy a cheaper car. It’s important to be aware though that if you’re considering a second hand vehicle, many lenders will have restrictions on the age of the vehicle you can buy on finance.
2) take out a loan over a longer term.
The longer your loan term, the cheaper your repayments will be. Car loan terms usually range from 1 to 7 years in Australia.
3) find a loan with a lower interest rate.
Make sure you use the comparison rate when comparing different loans in Australia. The comparison rate includes the interest rate plus the cost of any loan fees. Obviously, loans with lower comparison rates will have lower repayments.
Will you make your repayments on time?
Lenders will check your credit score as part of assessing your low income car loan application. They want to be sure you’ll make your repayments on time. Credit scores are compiled by credit reporting agencies in Australia. If you’ve ever borrowed money (or signed up for a service like a mobile phone or electricity account), you’ll have a credit score. You can check it for free online.
You’ll have a good credit score if you have a history of making all your repayments on time. If you don’t, you won’t.
Car loans for low income earners with bad credit
It’s possible to get a low income car loan if you have bad credit, but it’s also more likely that you’ll be declined by many lenders. If your application is approved, you’ll be charged a higher interest rate to cover your lender’s increased risk.
If you have bad credit and a low income, it’s best to talk to a good car finance broker for advice. Whatever you do, don’t apply to multiple lenders in the hope one will approve your application. That will only damage your credit score further.
One option that will increase your chances of being approved if you have a bad credit score is if you organise a guarantor for your finance. A guarantor is a person who agrees to make your loan repayments if you can’t make them. It’s usually a family member and it’s important that the person can afford the repayments and has a good credit score.
If your credit score is low, lenders are very likely to request your bank statements as evidence of income and sufficient cashflow. Lenders look for ‘good conduct’ which means bank statement line items like transaction declines, gambling spending (or ATM withdrawals at gaming venues), and any evidence of payday loans are likely to raise a red flag for the lender.
What are the eligibility requirements for a low income car loan?
You should arrange your finance before you start looking for a car. A pre-approved loan will:
1) give you much more price negotiating power with car dealers and private sellers.
In other words, you’ll be able to haggle on price with confidence. Be prepared to walk away if the seller won’t meet your price.
2) save you wasting your time looking at cars you can’t afford. Instead, you’ll be able to look at vehicles that you can afford.
Applying for a low income car loan pre-approval
Before you apply for a pre-approved car loan, make sure that you:
1) prepare a realistic budget showing how much you can afford.
Make sure that you have proof of all your income sources, whether it be from work, Centrelink (or a combination of both).
2) check your credit score (and take steps to improve it if you can by getting up to date with any overdue payments you have).
3) save as much deposit as you can.
The more deposit you have, the less you’ll need to borrow. This will also help you to demonstrate a savings history. Ideally, you should be able to show savings in your last three months on your bank statements to show that you can stick to your budget.
4) maintain a stable address if you can.
Lenders like applicants who don’t regularly change addresses. It’s a sign of stability.
5) talk to a good car finance broker about your options.
As mentioned earlier in this article, doing this will save you a lot of time. There is a huge range of lenders in the Australian car loan market, but not all of them will consider low income loans.
Low income car dealerships
Some car dealers will advertise that they approve low income car loans. Be very wary of these dealers. You can usually get a better deal by talking to a good car finance broker.
Car finance arranged through dealers usually benefits the dealer more than the buyer, especially low income vehicle finance. The dealer is only concerned with making the sale.
Car brokers on the other hand work on behalf of car buyers, not for dealers or finance companies. Good car finance brokers try to get a great deal for vehicle buyers.
Other low income car loan FAQs
What is a secured car loan?
A secured car loan is one where the vehicle is security for the loan. This lowers the lender’s risk because they can legally repossess and sell the vehicle if you don’t make your loan repayments.
Obviously, the best way to avoid that is to make sure you make your repayments!
Are low income car loans usually secured loans?
What does it mean if my car is on the Personal Properties Security Register (PPSR)?
The PPSR is a register for any secured loan, including car loans. Your lender will register your vehicle on the PPSR until your loan is fully repaid.
Can my partner’s income be included in my application?
Yes, and this will improve your chances of being approved (and it can also increase the amount you can borrow, which means you’ll be able to afford a better car).
Pooling your income with your partner will increase the amount you have available for repayments. You can bring your partner on as a co-borrower on the loan. This will mean that both of you are legally responsible for the repayments.
Your partner will need to show proof of all their income sources to the lender.
Does a higher interest rate make much difference to your repayments?
Always go for a loan with the lowest comparison rate that you’re eligible for. Otherwise, you’ll be paying more than you should, and every dollar counts when you’re a low income earner. Get the lowest repayments that you can.
How we can help
You can find out more about qualifying for a low income car loan by talking to one of our licensed and experienced 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 than you should.
Simply call 1300 301 051 during business hours to speak with one of our expert 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.
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.