If you are receiving Centrelink income your options for financing a new car will be limited, but it is definitely possible.
There will be stricter credit criteria to satisfy and your household budget must be watertight.
In this article, we will discuss how to present your loan application to give you the best chance at success! As well as discuss some hard truths that you must face if Centrelink is your sole source of income.
In This Post:
Is It Possible to Get a Car Loan on Centrelink?
Yes, it is possible to get a car loan on Centrelink. However, final approval will depend on the category of payment you are receiving, your capacity to repay the loan, and your credit history.
Some lenders will not approve loans for Centrelink recipients, whereas other lenders specialise in working with people on government benefits.
Policies are always shifting so get in touch with one of our expert brokers today to find out whether you can access a Centrelink loan.
How Lenders Assess Centrelink Income
There are two high-level scenarios to consider from a lender’s point of view:
- Centrelink is your sole source of income
- Centrelink payments are additional income
While Centrelink payments are stable, they are generally lower than a working wage and the amount of disposable income to make loan repayments are limited.
Even if you can afford loan repayments, some lenders will look at the limited disposable income and potential for competing expenses to arise and avoid taking the risk.
However, if Centrelink payments are only part of a borrower’s income then their options increase exponentially!
Why Lenders See Centrelink Recipients as Higher Risk
Lenders view stable employment as a sign that a borrower can meet repayment obligations.
Centrelink payments can be subject to shifting criteria and may not be a guaranteed entitlement for the repayment term of the loan.
Therefore, some lenders consider them less reliable than a wage from steady employment.
Centrelink Income Categories and Car Loans
Types of Centrelink Payments (And What Lenders Accept)
The first hurdle is whether the type of Centrelink payment is eligible under the lender’s current policies.
This is constantly changing but as a general guide the income categories are separated as follows:
Eligible:
- Single Parenting payments
- Family Tax Benefits
- Age Pension
- Disability Support Pension (in some circumstances)
Ineligible:
- Newstart (JobSeeker)
- Youth Allowance
How Centrelink Benefits Affect Your Borrowing Power
Your borrowing power is determined by how much disposable income you have after paying for your existing living expenses.
Centrelink payments are a benefit that is mostly available to those who need their expenses to be supplemented by the government and a surplus of money is generally not a shared characteristic of recipients.
Let’s look at the two scenarios and how they may differ.
It is not the source of the income in this case that determines your borrowing
Centrelink as Your Sole Source of Income
Centrelink payments are generally lower than a basic working wage in most cases. So if government payments are your only source of income then your borrowing power is limited.
Car loans are larger amounts than most personal loans or credit cards, so it may be difficult to be approved for an amount that will enable you to buy a vehicle.
But it can be done!
Centrelink as Additional Income
If you have a job and earn some income then extra money from Centrelink income would increase your potential borrowings.
Lenders may also perceive you as less risky and you may be eligible for other loan products at lower rates.
As long as you can demonstrate that both sources of income will be sustainable then you will have more options.
Types of Car Loans Available for Centrelink Recipients
Traditional Car Loans vs. Alternative Financing Options
Traditional car loans from a bank, credit union, or major lender may have minimum income requirements that a Centrelink recipient will not be able to meet.
There are non-bank lenders who specialise in higher-risk loans for Centrelink recipients. However, these will have a higher interest rate attached.
Secured vs. Unsecured Car Loans: Which One Can You Get?
A secured car loan (where the car itself is used as collateral) is likely to be your only option if your sole income is from Government benefits.
The interest is still likely to be high due to the perceived risk and lack of lenders offering this type of product.
Improve Your Chances of Approval
If your application is less than perfect you are going to have a hard time being approved for a car loan while receiving Centrelink benefits.
The below list of items will remove negative factors but may not be sufficient to get you approved if there are other detractors (like repayment capacity).
Cleaning Up Your Bank Statements
Lenders will review your bank statements to assess how you are managing your money.
Ensure there are no red flags such as payment reversals, negative balances, or rapid balance depletion after you have been paid.
Avoid Short Term Credit
Regular use of small credit services can be a sign that you are not managing your household budget effectively.
Avoid the following for an extended period of time prior to making a car loan application:
- Wage advance products
- Buy now pay later
- SACC (Payday) loans
If you are using these types of products to make ends meet then you are not ready to take on a car loan anyway.
Strengthening Your Credit Score
Ensure you address any problems that may show up on your credit file before applying for your car loan.
You will need to pay any of the following before you will be considered for a car loan:
- Any loans in arrears must be up to date.
- Any defaults on your credit file must be on a payment plan.
A lender will question these marks on your credit file and may reject your application if they have not been addressed.
Your broker can help you identify any of these issues prior to lodging a formal application so get in touch today!
Saving for a Bigger Deposit to Strengthen Your Application
By saving a deposit for your car loan you have demonstrated to the lender that you have surplus cash flow and can manage your budget responsibly.
Evidencing this while receiving Centrelink payments can strengthen your application significantly.
Get a Guarantor
A guarantor with good credit can help you secure a loan at a better rate, with better repayment terms.
However, they will be responsible if you default on your payments. So this is an area to tread carefully!
Centrelink-Specific Loan Options
No Interest Loan Scheme (NILS)
If you are on Centrelink and in genuine financial hardship you may be able to access a NILS car loan.
This is a not-for-profit organisation that provides interest-free loans for cars.
If you qualify, this can be a favourable alternative to a traditional loan.
Conclusion
If Centrelink is your only source of income then you may only have access to a higher-cost car loan. However, the loan amount will also be smaller and the repayments manageable.
If you need a car this may be the best option available to you.
For those with multiple income sources, you may be able to access other loan products that are much more favourable to you.
At Gusto Finance, we can compare lenders in just a few seconds to find the most suitable deal for your situation. Click the button below to inquire and our brokers will get to work to find you a great deal.
