Cars aren’t cheap endeavours that can simply be paid with a wad of cash, especially if you’re eyeing off that Audi Q3. That’s why most Aussies consider getting a car loan to make their dream of owning a car a reality.

However, before you get your hand on the set of keys, you may be wondering if you’re even eligible for a car loan. In this article, we take you though the common car loan eligibility requirements you must meet.

Car loan eligibility criteria

Before we dive into the all-important documents you’ll need to provide when applying for a car loan, there are some basic eligibility criteria a borrower must meet to be considered for car finance. These include:

  • Aged 18 years or over

  • You need to be an Australian citizen, or have permanent residency

  • Have a regular, permanent income

Keep in mind car finance eligibility can vary between different lenders and loan products. For example, secured car loans may have more leniency as the lender has the reassurance that if you default on the loan, the asset (often the car) can be repossessed. Whereas an unsecured car loan may have tougher credit criteria given the loan is not tied to collateral, which means more risk on the lender.

What documents do I need to submit for a car loan?

For a smooth and comfortable car loan application, you will need to provide your chosen lender with a range of documents that prove you’re a reliable borrower. These documents are:

  • Personal information and identification

  • Proof of income

  • Proof of assets and liabilities

  • Information about your car and insurance

Personal information

When assessing your application, a lender will require the following:

  • Your full name

  • Your age

  • Your date of birth

  • Address

  • Citizenship information

  • List of dependents

To verify this information, they will need 100 points of ID (driver’s license, passport, Medicare card) and either a utility bill, council notice, tenancy agreement, or mortgage statement.

Proof of income

Once a lender has verified your identity, the next thing they’ll look at is your proof of income and employment - can you afford to repay the loan?

Depending on your employment status, a lender will ask for:

  • Payslips - two most recent payslips

  • Bank statements - for the last three months showing your incoming and outgoing expenses

  • Tax returns or BAS - if you’re self-employed or own a business, you may need to supply this documentation. BAS stands for business activity statements.

A lender may also ask for a list of your current living expenses (e.g. rent or mortgage repayments), along with proof of genuine savings - this shows you have the ability to regularly save money and thus are likely to comfortably repay the loan.

Proof of assets and liabilities

To give a lender a broader view of your finances (your strengths and weaknesses), you may need to supply:

  • Detail on any income-generating assets you may have e.g. savings, property, investments, stocks, etc.

  • Information on an existing loans/debts e.g. mortgage, personal loan, credit cards, etc.

  • A summary of your superannuation

Information about the vehicle

Lenders may ask for the details of the car you wish to buy so they can understand how much it will cost and in turn, how much you’ll need to borrow. This is usually more prevalent with secured car loans, in which the lender usually likes to lend against new or newer vehicles. You will generally need to supply the following information:

  • An invoice from the dealership or contract of sale

  • The year, make, and model of the car

  • Vehicle chassis number

  • Registration details

  • Details on the car’s fuel efficiency (in the case of applying for any green car loan discounts)

  • Confirmation of comprehensive car insurance

How much can I borrow for a car loan?

A car buyer’s borrowing power is the highest amount a lender is willing to approve for a car loan e.g. you may have a maximum borrowing capacity of $50,000. Along with assessing your income, expenses, assets, and liabilities, a lender will also check your credit history to determine how risky you are as a borrower. If you have defaulted on payments in the past and have a ‘bad’ credit score, a lender may choose to offer you less money (lower borrowing capacity) or may even reject your application altogether.

If you don't have a credit score that falls within the 'excellent' category, it's not the end of the world. A secured car loan may be a potential path you could take as the lender has collateral to fall back on in the case you were to default on your repayments. In this case, a lender may increase your borrowing power for this type of car loan.

To work out how much you can comfortably borrow, take advantage of InfoChoice's car loan repayment calculator. From there, you’ll find out how much of a loan you can reasonably apply for, as well as the repayments on a car loan and the total cost in interest over the term of the loan.