What are the requirements for a car loan?

What do you need for a car loan?

Taking advantage of the benefit of modern technology, applying for a car loan can be done with just a few clicks, with the application and approval process now almost entirely online. While quick and relatively hassle-free, there are still a few steps involved before you can take your new car home.

However before the application process can even commence, you must meet base minimum lending requirements in order to obtain a car loan. For banks and lenders, this generally includes being aged over 18, have Australian citizenship (or permanent residency), and earning a significant income.

As part of responsible lending, lenders are required by law to ensure any loan product they approve will not put the borrower at harm of financial instability or risk.

At loans.com.au, we require documents that prove who you say you are and that you’ll be able to comfortably repay the loan. We are required to ask for these documents to comply with responsible lending criteria.

Car loan documentation

Personal information and identification forms

Personal information and identification documents include:

• Your full name.
• Your age.
• Your date of birth.
• Citizenship information.
• A list of dependants (children, elderly or sick relatives you care for etc.).

Banks and lenders require a driver’s license, which will be electronically verified or certified. In some cases, we may require additional forms of identification such as your Passport and Medicare Card.

Proof of income

Arguably the most important element for a lender when assessing a loan is your ability to sufficiently repay the loan. This is because the money being lent to you is not ‘yours’, it belongs to the bank, that you are repaying with interest. As such, banks or lenders will ask for each of the following:

• Two most recent pay slips.
• Bank statements for the last three months showing your incoming and outgoing expenses.

Generally you will also be asked to provide a detailed list of your current living expenses, such as rent or mortgage repayments.

Banks and lenders generally define income as money earned from employment, rental or investment sources. However, not all income is derived from employment. Retirees, for example, may receive income from superannuation or investments, while others may receive government benefits or disability payments. Some lenders may not recognize Centrelink payments as income, while others will do so based on specific car finance eligibility criteria.

Regular fixed payments from Centrelink, such as Veterans payments, the age pension, family tax benefits, rent assistance, and National Disability Insurance Scheme (NDIS) payments, can be considered as income. However, temporary or supplemental measures like Youth Allowance payments are typically not considered as income.

Proof of assets and liabilities

You will also be required to provide documentation detailing your assets and liabilities to provide a broader view of your overall financial strength. Depending on your employment and personal situation, we may also ask for some or all of the information below:

• Information on any other loans you have, such as mortgage and personal loan documents.
• A summary of your share portfolio if you have one, or a portfolio of other investments such as bonds.
• A summary of your superannuation.

Information about your car and insurance

We need to know the details of the car you wish to buy, so we know how much it will cost and how much you’ll need to repay.

When purchasing a car, you will generally need to supply the following:

• A dealer invoice or contract of sale (contains address, contact numbers and ABN).
• The vehicle chassis number.
• The year, make and model of the car.
• Information on the vehicle’s registration.
• Information on the car’s fuel efficiency (at loans.com.au discounts are offered for cars that are more fuel-efficient than the average car in their category, i.e. electric vehicles).

Importantly, it’s highly likely you will need to provide proof of comprehensive car insurance before receiving approval for a car loan. This is so you can repay the loan in full in case the car is written off.

Determining your borrowing power

Put simply, your borrowing power is the maximum amount that can be approved for a car loan. This is a combination of your credit score, credit history, income, expenses, assets and liabilities. Banks or lenders use this measure to ensure that you can make repayments without experiencing financial hardship. Under responsible lending laws, banks and lenders are not to approve amounts that exceed this threshold.

To estimate borrowing power, take your total income from all income streams and subtract all your expenses including loan or credit repayments, rent, utilities, and discretionary items. The number of dependents or children may also impact borrowing power. Additionally, the borrower should consider the ongoing cost of car ownership, including maintenance and running costs, to ensure they can meet repayment obligations.

More precise calculations can be made by taking into account the approximate interest rate and loan term. Lenders may also consider whether the borrower is applying individually or as part of a joint application, although this is not a factor in determining your individual borrowing power.

Use onTrack to speed up your application

Sending all of these documents can be a pain which is why loans.com.au created onTrack to make everything much easier. Using onTrack, you can upload, review, and approve documents, receive notifications and track the progress of your car loan’s progress 24/7.

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Check out the range of low rate car loans loans.com.au has to offer, as well as our car loan calculator to determine car loan repayments and ensure you are getting a competitive car loan deal.