Whether you’re upgrading your family car, replacing an older vehicle, or gearing up to purchase your very first set of wheels, you may consider a car loan to help cover the upfront costs. But the question is: How much can I borrow for a car loan?
The answer isn’t the same for everyone. The amount you may be able to borrow depends on a range of factors, including your income, expenses, credit history and the lender’s credit eligibility criteria.
At Rapid Loans, eligible borrowers can apply for secured vehicle loans from $5,000 to $45,000, subject to approval. Understanding what lenders look at before you apply can help you set a realistic budget and make the car-buying process much smoother.
This guide explains how car-loan borrowing capacity works, what lenders consider, and how you can prepare before applying.
Start by understanding your budget
Before you start comparing vehicles, it’s worth taking a step back and working out what you can comfortably afford.
While the purchase price is important, owning a car comes with ongoing costs that are easy to overlook, including:
- Registration
- Comprehensive insurance
- Fuel or charging costs
- Servicing and maintenance
- Roadside assistance
- Tyres and repairs
Factoring in these expenses can give you a clearer picture of what you can comfortably afford.
At Rapid Loans, our secured vehicle loan products are available from $5,000 to $45,000, with loan terms ranging from 24 to 60 months, subject to our credit eligibility criteria and approval.
What do lenders look at?
Each lender has its own lending criteria, but they’ll generally assess several factors before deciding how much you may be able to borrow. These often include:
- Your income
- Your regular living expenses
- Existing loans or credit commitments
- Employment history
- Your credit history
- The value of the vehicle being purchased
Preparing your car loan application
Taking some time to prepare before applying can make the process smoother. A few useful steps include:
Checking your credit report
Your credit report provides information about your borrowing history and can help identify any errors that should be corrected before you apply. You can access your credit report through Australian credit reporting agencies such as Equifax or Experian.
Work out a comfortable budget
Rather than borrowing the maximum amount available, think about what repayment amount fits comfortably within your existing budget.
Sometimes choosing a slightly more affordable vehicle can reduce financial pressure over the life of the loan.
Gather your documents
Having your documents ready before you apply can save time later.
Depending on your circumstances, you may be asked to provide:
- Identification
- Payslips
- Bank statements
- Proof of address
- Details about the vehicle you’re purchasing
Does your credit score affect how much you can borrow?
Your creditworthiness is closely tied to your credit score and significantly influences the loan amount and interest rate you qualify for.
Generally, a stronger credit history may improve your borrowing options, while a lower credit score may affect the amount you’re able to borrow or the loan features available.
If your credit score is lower than expected, here are our tips for applying for a car loan with below average credit. An average credit score doesn’t necessarily mean you can’t get a loan, but it may affect your borrowing capacity and the terms available to you.
Lenders also consider your income, current financial commitments and overall ability to manage repayments. Every application is assessed individually against the lender’s credit eligibility criteria.
How do lenders calculate borrowing capacity?
Lenders determine your borrowing power by conducting a credit check to help assess whether you’re eligible for a loan. They’ll also look at your income and expenses to see what’s left over to pay back a loan. Factors such as your income, employment status, savings, expenses, and credit history collectively shape the lender’s assessment.
Before making a formal credit inquiry with a credit reporting agency, you may need to provide payslips, bills in your name and other financial statements to show you can afford to pay back a loan. This allows the lender to do their due diligence and ensure you have capacity to manage your financial obligations. It’s important to note that a formal credit enquiry may be recorded on your credit file. However, this forms part of the lender’s assessment process.
Making sure you have everything in order before applying for a loan is a good idea. Not only does it make the process faster and easier so if you are successful you can get into looking for a car sooner, but unsuccessful applications can impact your credit score. If you have questions about anything before you get started, you can always contact our friendly team and we can help you get some clarity.
Looking beyonder the advertised interest rate
When comparing car loans, it’s natural to focus on the interest rate—but it shouldn’t be the only thing you consider.
It’s just as important to focus on monthly repayments to get a comprehensive understanding of how much the loan costs each month and how much you’ll be able to budget for. You’ll be able to factor this consistent repayment into your budget month by month alongside the other costs of running a vehicle such as rego, insurance, petrol and other on-road costs.
The other thing to consider is whether there are any fees if you want to make repayments early. Sometimes you might have extra money and want to reduce the overall period of your repayments by putting extra into the balance you owe. Some lenders will charge early repayment fees, but Rapid Loans allows eligible borrowers to make additional repayments or repay their loan early without additional early-repayment costs.
How Rapid Loans can help
At Rapid Loans, we understand the significance of simplifying the car loan process for our customers. Whether you’re eyeing a brand-new vehicle or a reliable second-hand car, our pre-approval process can help make the experience simpler and give you greater clarity before you begin shopping. Having pre-approval also makes things smoother and faster for you to get your next car. Instead of finding a vehicle you want, then applying for a loan before purchasing, you can begin your search with a clearer indication of your potential budget (subject to final approval and the vehicle meeting the lender’s requirements).
Since 2003, Rapid Loans has helped over 50,000 Australians access simple and straightforward finance options. Apply online with Rapid to unlock the road ahead.
This article is general information only and does not constitute financial or credit advice. It does not take into account your personal objectives, financial situation or needs. When you apply for a loan with Rapid Loans, your application will be assessed against our credit eligibility criteria. All applications are subject to approval. Terms and conditions, fees and charges apply.