In Australia, there is a small window of time when you are old enough to drive independently with a provisional license, but not old enough to get a car loan.
So unless you have generous parents who are prepared to buy you some wheels (and let’s face it, it will still be an old bomb) then you are likely to need a car loan for your first purchase.
In this article, we will discuss how old you need to be to sign up for a car loan in Australia and share some tips to prepare for this.
It will not be as easy as you think!
In This Post:
The Minimum Age for a Car Loan in Australia
What’s the Legal Minimum Age?
In Australia, the legal minimum age for a car loan is 18 years old. You are unable to enter any contract of any kind until you are an adult.
Your savings record and employment status are totally irrelevant if you are not able to legally sign a contract.
However, these things will become important the day you do turn 18 because it still will not be easy!
Minimum Age Requirements Vs Lender Policies
Once you turn 18 there are no guarantees you will be approved for a car loan.
Some lenders prefer to lend to people who have an established record of borrowing and repaying money before they approve a car loan.
While there are some lenders who assess younger borrowers in a more favourable way there will be stricter criteria to meet.
For assistance in selecting the right lender and preparing your application in the best way possible then click the inquiry button below to get in touch with our team of expert car loan brokers.
How Age Affects Your Loan Application
To fully understand how your age will affect your car loan application it is important to understand how a lender will assess you.
You will be assessed on a range of factors including:
- Your credit history
- Employment tenure and income stability
- Repayment capacity
- Use of short-term lending products like wage advance and BNPL
If you are a younger borrower may struggle to demonstrate a reliable history on some of these factors.
As a result, lenders often regard those who are only just old enough to get a car loan as too risky.
Credit History (or Lack Thereof)
If you have just turned 18 you probably haven’t entered into a credit contract just yet.
Lenders prefer borrowers with a proven track record of repaying debts on time.
Without past loans, credit cards, or other financial agreements, lenders have little data to assess your reliability.
However, an easy way to start building up a credit history is with a mobile phone contract.
It is the equivalent of a credit contract in that there is a commitment to regular repayments over time and the barrier to entry is very low.
Employment and Repayment Capacity
Even if you have already entered the workforce full time then you are still at the very beginning of work working life.
This usually means your salary is well below the average.
You may still be able to service a car loan, but the size of the loan is likely to be limited to a smaller maximum lend.
Can You Get a Car Loan Under 18?
Guarantor Loans
While you can’t legally take out a car loan under 18, a parent or guardian can co-sign the loan for you.
This means they take on joint responsibility for the debt.
If you miss payments, your guarantor is on the hook for the full amount owed. So it does come with risk and you may not get an enthusiastic response when asking someone to co-sign a loan.
How to Improve Your Chance of Approval as a Young Borrower
Build a Credit History Before Applying
We have already discussed the simple option of signing up for a mobile phone plan. You should only do this if you can comfortably afford the repayments.
Another option is to apply for a low-limit, and low-cost, credit card.
However, tread carefully!
While you are young you may lack the impulse control to manage a credit card.
It is very common for first-time cardholders to accumulate large debts that are very hard to repay.
It will accumulate fast if you are not disciplined in your spending.
Steady Reliable Income
If you have a permanent full-time job then you will be in a better position.
However, even with casual employment, you can apply for a car loan if you have been in the job for at least three months.
The consistency of your earnings will be important though.
The Power of a Deposit: How Saving Up Can Help
Another way to de-risk your lender profile is to have a decent-sized deposit to put towards the car purchase.
This demonstrates you are financially disciplined and also have surplus income to support car loan repayments.
It also has the effect of reducing the size of the car loan compared to the cost of the asset.
A lender will be more likely to lend you $10,000 against a $15,000 car than $17,000 against the same car (yes there are costs involved).
Can You Get a Car Loan on Your P-Plates?
You can get a car loan on your P-Plates as long as you can insure your vehicle.
Most car loans will be secured against the vehicle you buy and the lender will often require comprehensive insurance of the asset as part of the approval conditions.
A provisional license does not prevent you from getting insurance but it will make it more expensive – but that’s life!
What About L Platers?
Why would a learner driver apply for a car loan? Who knows, but it happens.
We had no problem getting an L-Plater approved for a loan. However, the challenge was getting the insurance.
You may need a second driver on the insurance that has a full license. They are not linked to the loan in any way but may need to be a listed driver on the insurance policy.
What Interest Rate to Expect as a Young Borrower
A lender’s interest rate is influenced most by the level of risk they are taking on when approving the loan.
Given that young borrowers are in a higher risk category then expect a higher interest rate compared to what you may see advertised by a big four bank.
This is where a broker can assist you in finding the lowest interest rate accessible to you given your circumstances.
So get in touch today and we can get to work for you.
Conclusion
While you may be counting down the days until you turn 18 to get your first car loan, there is a lot more to consider to ensure you are eligible for approval.
However, if you prepare by saving a deposit and establishing even a basic credit history then you will be far better placed to apply as soon as you are old enough for auto finance.
