A car is symbolic of freedom. Whether that means being able to get down to the shops when you need, to and from work easily, or simply being able to hit the open road and explore this beautiful country, owning a car should be an option for everyone.
However, cars aren’t cheap endeavours to simply go about purchasing outright. That’s why most people consider getting car loans to make their dream of owning a car a reality.
But before that happens, many people ask themselves if they’re even eligible for a car loan. If you fall into this category, don’t worry, Driva has you covered. This article breaks down everything you need to know about car eligibility in just a few hundred words.
Let’s put the pedal to the metal and get started!
4 important car loan eligibility criteria you’ll need to tick off before you can get a loan…
A car loan has four important pillars that get you through the door and make you eligible. These four criteria are proof of income, assets, age, and residence.
Provide proof of your income
One of the first things you need to provide any lender when applying for a car loan, a personal loan, business loan, or any other loan for that matter, is proof of your income and employment—self-employed or otherwise.
Signing a deal on a loan is a serious financial commitment and is also a potential risk for a lender. By providing proof of regular income, you’re proving you’re capable of making steady monthly repayments to the loan.
What is classified as income?
Proof of income can be expressed in the following ways:
- Pay stubs
- Tax returns
- Bank statements
- Youth allowance
Provide proof of your assets
A thing any serious borrower wants to know is what income-generating assets you possess as well as liabilities. This gives borrowers a bigger picture of what your financial situation and financial strength (or weakness) look like.
What are classified as assets?
Many things can be counted as assets:
Anything major that holds value and could be turned in for a cash exchange should be considered an asset.
Provide proof of your age
You’d need to provide proof of identity to apply for a loan. Proof of identity not only confirms you’re the person hoping to achieve the loan but also that you’re of age to apply for a loan. This is a bare minimum requirement that all borrowers by law must adhere to, and therefore, it will be required.
Provide proof of your residency and/or citizenship
Proof of residency and/or citizenship is required by law. You can use the following documents to prove you are a current permanent resident and/or Australian citizen:
- Mortgage statements
- Utility bills
- Lease agreement
- Property tax bills
- Bank statements
- Medicare card
- Credit card statements
Before you begin, it helps to ensure this information is accurate and up to date and that you have all the necessary documents at hand for the lenders to properly proceed with your loan application.
All checked off? Here are some factors that will impact the terms of your loan…
Once you get your loan approved, terms and conditions such as interest rates are influenced by certain factors which impact the overall nature of the car loan.
Let’s take a look at what these factors are:
Length of the loan term
The length of a loan can significantly influence how much the monthly payments might be and the total amount repaid to the borrower. Consider it like this, the longer the loan agreement (60/72/84 months), the less the monthly payment value (lower interest rates), but the higher the overall interest that will be paid over the lifetime of the loan. Whereas the opposite is true when the loan is shorter (12/24/36/48 months).
Your Australian credit score you possess influences not only your ability to get a loan in the first place but also the interest rate you’ll be paying on that loan and the amount you’re eligible for. This means you should be taking a vigilant approach to how you behave in the eyes of lenders. You achieve this by paying bills on time and having monthly commitments to prove your creditworthiness. A bad credit history of not paying bills or debts on time will not be looked on favourably by any lender.
For the 6 to 12 months before you apply for a loan, consider what you’re purchasing and why you are purchasing it, as lenders and banks will be looking into these behaviours as well as your current financial situation before handing over any money.
Size of down payment or loan amount
Down payments are payments made initially to lessen the extent of the loan required to purchase a vehicle. For example, if a vehicle costs $30,000 but you put down a down payment of $10,000 you only need to borrow $20,000 from your lender. This will reduce the amount of interest you’d need to pay in order to achieve the car because it’s less than the value of the car.
Take a look at our car loan finance calculator to see where you stand in terms of your potential loan repayments.
Got everything ready to apply for your car loan?
If you’re ready to start the process of applying for a new car loan, then what are you waiting for?
Driva will help you find the best car loan for you in Australia! Just by inputting details on the vehicle you want, and a few more bits and pieces about you such as a driver’s license, we can match you up with the best loans in Australia and get you on your way to purchasing the new car of your dreams.
Are car loans worth it?
There are many benefits to car loans. For starters, a car loan means being able to purchase a vehicle that you want. If you were to forgo a car loan and only spend available funds, you might limit your options purely based on what you can afford. Secondly, car loans build up your overall credit score, which becomes necessary for larger loans for things like a home or other major purchases. So, provided you can afford a car loan, it’s definitely worth getting.
What makes you eligible to finance a car?
Several factors can influence the ability to get a loan and the amount you’d be eligible to receive. The central pillar of achieving a car loan is proof of income dating back 3 months. This provides the borrower with evidence that you can achieve monthly payments for loan repayments. However, it’s not the only thing lenders look at. They dive deep into you as a person, your credit score, etc.
What is the minimum credit score for a car loan?
More often than not, it’s considered that a credit score that falls below 600 is below average or fair. However, a credit score that instead falls between 550 to 624 would be viewed favourably by lenders and classified as adequate. This doesn’t apply to all lenders, but most will view the score between those two numbers as acceptable. Scores under 549 won’t be looked at as favourably.
What counts as income for a car loan?
There are several options for proof of income that include the following:
- Tax returns
- Bank statements
- Pay stubs
Essentially, anything that proves a stable and consistent income can be viewed as proof of income. However, they must be expressed in one of these documents or something of similar value/importance.
What is the difference between unsecured loans and secured loans?
Secured loans are loans that are backed with collateral. Examples include cars, mortgages, stocks, insurance policies, etc. These loans use assets such as your car or home as collateral for the loan, but it can be any financial asset you own. If you cannot pay back the loan, the bank seizes the asset/collateral as payment.
An unsecured loan doesn’t require collateral but still charges interest and, in some instances, fees. Examples include personal loans, credit cards, student loans, etc.