Lenders in Australia have strict eligibility requirements for their auto finance products, and their policies change frequently!
There is a significant overlap in criteria, with most prime lenders looking for a similar customer profile. However, things become far more nuanced with non-bank lenders who specialise in lower credit-quality car loans.
This guide will summarise the most common factors so that you can prepare in advance of submitting an application.
As always, if you would like a personalised consultation so you know what car loans you may be eligible for click the button below to get in touch with one of our car lending specialists.
In This Post:
What is Car Loan Eligibility?
Car loan eligibility rules help lenders screen out customers who are considered higher risk, or unsuitable for their business model.
Lenders are very cautious who they lend money to for two reasons. The first is there are strict laws around lending money (which we will discuss later), and the second is they want to minimise the risk of someone not paying them back.
These benchmarks help ensure that borrowers can repay loans without financial strain, safeguarding both parties.
Eligibility usually revolves around income, credit score, and employment. Lenders evaluate these elements to decide if you qualify for a loan and how much they’re willing to lend.
Factors That Determine Car Loan Eligibility
Credit Score
Your credit score provides a quick snapshot of your history of managing debt. A higher score signals reliability, making lenders more inclined to approve your loan on favorable terms.
While a lower credit score will exclude you from some lenders, others will lend to very low credit scores if there are other factors that indicate you are a good credit risk – despite past troubles.
Recent Credit Activity
One of the most damaging things you can do to your credit score in the short term is applying for a series of loans in quick succession.
Especially if the applications have been for high-interest cash loans. You’ll hear terms like Small Amount Credit Contract (SACC), Medium Amount Credit Contract (MACC), or payday loans thrown around. These are all generally detractors to your eligibility.
However, this is not limited to your credit file. Your bank statements will also provide clues to any additional credit you may be carrying.
The recent emergence of Buy Now Pay Later (BNPL) services, and Wage Advance lenders is one of the most common reasons we see customers ineligible for a car loan.
The good news is use of the latter is fixable very quickly. Our brokers can talk you through solutions to this so again I encourage you to get in touch.
Income
A steady income reassures lenders of your repayment capacity and determines your borrowing power. Longer tenure with your employer and uninterrupted income over time is looked upon favourably by lenders.
They typically require proof of sufficient earnings to cover loan installments alongside other living expenses.
Employment Type
A long-term, full-time employee presents as much more stable than a casual employee whose hours and income may fluctuate week to week.
So the type of employment is just as important as the amount of income you earn.
I mentioned tenure earlier, this will also be important for full-time employees who may have changed jobs recently. A probationary period may exclude you from some lenders but would satisfy eligibility requirements with others.
Existing Unpaid Debts
As long as you can afford your repayments on existing debt, and the car loan you are applying for, you will be eligible for a car loan in most cases.
However, if you have missed payments are are currently in arrears then you will be ineligible. So before you apply for a new loan you should make sure that you catch up on any missed payments.
No lender wants to give money to someone who has recently demonstrated that they are unreliable with repayments.
The good news is that this is also fixable.
Vehicle Purchase
A critical, but often overlooked eligibility item is the car you are planning to purchase.
In most cases, new cars are ok. But used cars may have a range of criteria depending on the lender such as the age of the car, the number of kilometres on the clock, and the loan-to-value ratio once the financing is in place.
Documents Needed to Determine Car Loan Eligibility
You can determine car loan eligibility quickly and easily through our online application portal with some basic documents.
An indicative result is possible once we have confirmed your ID, credit score, and bank statements from the last 90 days. You can submit all this online in less than two minutes.
We then compare the results to your desired loan and vehicle purchase and conduct our consultation with you.
This is not the same as submitting a loan application to a lender which requires a much more comprehensive set of documents.
The Role of Credit Scores in Australia
Credit Score Eligibility for a Car Loan
The better your credit score the cheaper loan you are likely eligible for. However, even with a score as low as 200 you may be eligible for a car loan if you have demonstrated good behaviours.
As a rough guide, you are likely eligible for a car loan if are in any of these categories. The loan will have a higher rate in the lower credit score bandings:
- Bad credit – 200 to 400
- Fair credit – 400 to 600
- Good – 600 to 800
- Very good – 800+
This alone will not determine your eligibility but is an important contributing factor, and often the first hurdle.
How to Check Your Credit Score for Free
You can check your credit file for free from the list of Credit Bureaus below:
Reviewing your report beforehand can help you address any inaccuracies or issues.
Annual Income Requirements for a Car Loan
There is usually no minimum benchmark here.
However, lenders need to see that you can pay your existing expenses and still have sufficient income left over to make your car loan repayments.
Even applicants on Centrelink payments are eligible with some lenders. While their income is usually lower than a full-time employee, it is often predictable.
Employment Requirements for Car Loans
Do You Need to Be Employed Full-Time?
You do not need to be a full-time employee to qualify for a car loan.
Part-time and casual workers will be eligible with some lenders if they meet requirements in employment tenure and earn a consistent income.
Are Sole-Traders Eligible
Yes, sole traders and ABN holders are eligible if they can meet other requirements around the consistency of income and the length of time they can demonstrate the income.
There will be additional documentation required as part of a loan application, which will include an annual tax assessment from the ATO for at least two financial years.
Is Centrelink Income Eligible
Only certain categories of Centrelink income would qualify you for a car loan.
For example, if you are unemployed and receiving a Jobseeker payment you will not be eligible for a car loan.
However, a number of other categories including pensioners and those receiving parenting payments will be eligible with some lenders. But your options will be few.
Our brokers can help match you with the right lender if you are receiving a Centrelink payment.
How Eligibility Affects Your Choice of Lender
Banks vs Non-Bank Lenders
Banks tend to have stricter criteria but may offer lower interest rates. Your credit score and a squeaky clean credit history is usually required to be eligible for a bank car loan.
Non-bank lenders have the freedom to be far more flexible in their lending policies. The variation between non-bank lenders is significant and any number of customer profiles can be accommodated.
This is where the true value of having a car loan broker in your corner surfaces. They know the eligibility criteria amongst a broad panel of 40+ lenders and can save you the legwork (and damage to your credit file) of making multiple unsuccessful applications for auto finance.
Interest Rates
Your eligibility directly impacts the interest rate offered. Strong financial credentials often lead to lower rates, reducing the overall cost of the loan.
Non-bank lenders will often have higher interest rates. In return, they will lend to customers with a lower credit score.
Tips to Improve Your Car Loan Eligibility
Improve Your Credit Score
A detailed summary of how to improve your credit score is well beyond the scope of this article. But generally speaking, you can improve your score by holding up an impeccable repayment history with your current loans.
So pay bills on time, clear outstanding debts, and limit new credit applications in the months leading up to your car loan application.
Use a Co-Borrower or Guarantor
If you are ineligible for a car loan due to your personal circumstances you may be able to change this if a second borrower was part of your loan application.
A co-borrower or guarantor with strong financial standing can improve eligibility. However, this individual would be taking on liability for the debt and should be considered carefully.
Limit Use of BNPL and Wage Advance Products
Frequent use of BNPL and wage-advance products may indicate poor financial management.
All licensed lenders are prohibited from lending to a customer at risk of substantial hardship as a condition of retaining an Australian Credit License. Use of these products is one of the primary indicators that you are at risk of experiencing hardship in the future.
The lesson here is to avoid using these products for at least 90 days before applying for your car loan so you can demonstrate good budget management and ensure you are eligible to apply with the best lender possible.
Legal and Regulatory Considerations
Australia has several consumer laws that lenders must navigate when determining loan eligibility.
One of the main reasons that big banks are more cautious with auto lending is that they are a big target for regulators, the government, and the media.
National Consumer Credit Protection Act (NCCP)
The main element of the NCCP that you should understand is the Responsible Lending Obligations in the National Credit Code.
It includes a range of standards that all car loan lenders must uphold. This is the biggest influence over car loan eligibility and how credit assessments are conducted.
The Role of the Australian Credit Licence
The NCCP also includes categories of lending that require a valid Australian Credit Licence. This includes all forms of auto finance and leasing.
While all lenders have their own internal risk policies, it is the regulatory compliance that can be far more influential.
Conclusion
The good news is that you do not need to understand eligibility at all if you plan on using a car loan broker to guide you and help prepare your loan application.
Each lender has their own set of rules and no one outside of the industry could ever know them all.
So get in touch with Gusto Finance today for a fast and easy assessment of your car loan eligibility.
