You can now buy an EV for $25,000 and there’s a wide range of electric cars and SUVs for less than $45K from BYD, MG, GWM, Chery and other brands. Here are the cheapest EVs to buy in Australia right now.
Car Loans
How much can I borrow for a car loan?
Key points
- Start with your borrowing limit: Set your repayment budget and borrowing limit before you shop for a car.
- Lenders assess multiple factors: For a smoother approval process prepare information about your financial position including income, expenses, assets and liabilities.
- Credit score impacts rates and amounts: Higher scores can mean lower interest rates.
- Pre-approval offers confidence: Pre-approval helps you shop for a car with confidence. However, for final approval when you’ve selected your car, an updated financial check may be needed.
- Borrow only what you need: Establish what repayments will comfortably fit your budget, and stick to them.
Factors determining loan amount
Your ability to comfortably repay your car loan is at the heart of the assessment process. The lender takes the time to understand your financial situation so they can offer a loan that fits your budget and lifestyle.
| Factors | ||
|---|---|---|
|
Your circumstances |
Your income, existing financial commitments, and regular living expenses. |
Helps determine the size of loan and your ability to repay the loan comfortably. |
|
Credit score |
Assessed via credit bureaus; ranges from below average to excellent. |
Influences interest rate and ability to obtain a loan. |
|
Foreseeable changes |
Any expected changes to your financial position (e.g. job changes, reduced income). |
Consideration that the loan will be reasonably affordable during the term. |
|
Car type & loan terms |
The type, age and value of the vehicle, as well as the loan term requested. |
May affect interest rate and repayment terms. |
|
Pre-approval |
Temporary approval for a set amount, valid for a defined period. |
Let’s you shop confidently. |
Income and expenses
When applying for a car loan, lenders undertake a thorough assessment of your financial situation to ensure you can comfortably meet your repayment obligations. This process is designed to safeguard both the borrower and the lender from financial hardship and is guided by responsible lending principles.
Carlos Gasser, General Manager of RACV Finance, outlines the approach as follows: “Our assessment process begins with a comprehensive review of your salary and all additional sources of income,” he says. “We then conduct a detailed analysis of your expenditure, categorising your expenses into distinct groups.
“By carefully assessing your finances, we can work out exactly how much you can borrow and make sure your loan repayments fit within your budget.”
The lender may decline your application if they believe you might struggle to meet the repayments. In some cases, you may need to consider a smaller loan amount or a longer loan term to improve your chances of approval.
Credit score and finance rate
Your credit score plays a key role in both whether you’re approved for a car loan and the interest rate you’re offered.
“Lenders use your credit score to help determine the rate you may qualify for,” Gasser explains.
“Most lenders place borrowers into broad credit score ranges, from below average through to excellent. An excellent score can help you secure a lower interest rate, while a lower score may still be approved, but usually at a higher rate."
Calculate your repayments: Estimate your monthly or fortnightly repayments on your loan
Should I borrow the maximum amount offered?
Not necessarily. Just because a lender is willing to loan you money doesn’t mean you have to take it. If your circumstances allow you to borrow $50,000 for a car loan but you only need $30,000, you don’t need to accept the higher amount. Ultimately, it’s your decision to accept terms that are agreeable to you. Make sure you’re comfortable with the repayment amounts and that they fit within your budget.
Pre-approval helps you shop for a car with confidence before finalising the paperwork.
What is a car loan pre-approval?
Pre-approval is like getting permission from your lender for a certain loan amount, but it doesn’t give you access to the money yet. It helps you shop for a car with confidence, knowing what you can afford, before finalising the paperwork.
Every time you apply for a car loan, the result will impact your credit score, so you only want to do that process when you are set to buy.
“RACV offers an applicant up to 89 days from pre-approval to search for the car they want,” says Gasser.
“However, the information in the pre-approval could be subject to another assessment by the lender. For example, if you've applied for a $40,000 pre-approval and then you settle on buying a $50,000 car, lenders would typically need to reassess your application.
"A pre-approval gives you some comfort that you can budget for a particular amount and know that you can engage car sellers and negotiate with authority.”
8 steps to secure the right car loan
- Assess your finances: List all sources of income and regular expenses.
- Check your credit score: Use a reputable bureau like Equifax.
- Research lenders: Compare offers, rates, and terms.
- Seek pre-approval: Apply for a pre-approved amount before shopping.
- Shop for your car: Stay within your pre-approved budget.
- Finalise the loan: Complete the formal application once you’ve chosen your car.
- Review repayment terms: Ensure repayments fit comfortably within your budget.
- Accept only what you need: Don’t borrow more than necessary.
Final tips
Understanding your car loan borrowing power is essential for making smart decisions when it comes to buying a new or used car. By considering your income, expenses, credit score, and lender criteria, you can secure a car loan that fits your needs and helps you avoid financial stress. Use finance pre-approval to shop confidently, and always borrow responsibly and within your budget.
Ready to start your car buying journey?
R.A.C.V. Finance Limited ABN 82 004 292 291 Australian Credit Licence No. 391488. RACV Finance is subject to RACV lending criteria. Conditions, fees and charges apply.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about financial products. You should always seek your own professional advice that takes into account your own personal circumstances before making financial decisions.
