If you are in the market for a new set of wheels, you may be considering a car loan to assist you in achieving your new vehicle dreams.

Car loans are a type of personal loan taken out for the sole purpose of purchasing a motor vehicle. They can assist with the purchase a car, ute, SUV or 4WD if you don’t have enough savings to purchase a vehicle outright.

So how exactly do you apply for a car loan? This guide will answer all the basics to applying for a car loan and help you determine whether a car loan is right for you.

What types of car loans are available?

Like any type of finance, car loans are not created equal and vary across interest rates, fees, length of term and specific conditions. Choosing which car loan is right for you is dependent on your individual financial circumstances.

Here’s a brief overview of the main types of car loans available:

  • New car & used car loans – a new car loan is designed for a brand new vehicle, while a used car loan is for a pre-owned car.

  • Secured & unsecured – a secured car loan is one that uses an asset (the vehicle) as security or back-up. An unsecured car loan on the other hand is not backed by an asset, meaning it will often come with high interest rates as it involves more risk for the lender.

  • Fixed interest & variable interest – loans with fixed interest will retain the same repayment amount, generally for the life of the loan. The repayment amounts on variable interest loans, as the name suggests, may vary depending on the current interest rate.

  • Chattel mortgage – Chattel mortgages are available for business owners wanting to purchase a vehicle for business purposes. They sometimes come with a ‘balloon payment’ which is a larger final repayment.

How do I qualify?

Qualifying for a car loan is similar to any form of personal loan, meaning you need to prove your identity, have a sufficient source of income to satisfy lending requirements and have good credit history.

General requirements to qualify include:

  • 18 years of age or older.

  • Australian citizen or permanent resident.

  • Consistent income to meet lending requirements.

Although good credit history is beneficial, with a bad or no credit rating you may still be able to obtain a car loan, although it is likely to be subject to higher interest rates.

In some cases such as where you have never had a loan before, the lender may request a guarantor. This means someone such as a parent or other relative, can guarantee repayments will be made if you are unable to make them.

Check out some more tips to help you qualify for a car loan and get those new wheels on the road sooner.

Related: How long does car loan approval take?

How do I apply?

You’ve decided a car loan is right for your circumstances, so what comes next?

1. Check your credit rating

Your credit rating or credit score is the number that represents how trustworthy your reputation is as a borrower based on your financial history. It could be a good idea to check your credit score before you apply for a loan to understand how appealing you are as a borrower, as this could affect how likely a lender is to approve your car loan application.

2.  Have your paperwork at the ready

Lenders will want a grasp of your financial position before approving you for a car loan.

You’ll generally need to provide:

  • proof of your income, minimum of two payslips or tax return

  • proof of your current ongoing expenses, such as your rent or utility bills

  • copies of your current bank statements - last three months, to show your savings history and any repayments you’ve made in the past, including credit cards

  • personal identification, such as a passport or driver’s licence

3.  Consider loan pre-approval

You may think pre-approval for a car is over the top, yet some people like to know whether they’ll be able to get a car loan before they start hunting around and putting in offers.

Receiving car loan pre-approval can give you peace of mind knowing how much how much you can spend on your new vehicle, along with the terms of the loan.

Pre-approval is only valid for a limited time frame, usually up to three months. Pre-approval isn’t the same as unconditional or formal approval, but it could help you shop with greater confidence on your journey to a new car.


Who offers car loans?

In Australia, those offering car loans are banks and financial institutions, car finance brokers, car dealerships with in-house or partner financing and online lenders.

For your one stop shop for great deals on car loans, check out some low interest rates and get a quote now.