Did you know the average age of a passenger vehicle in Australia is over 10 years old? This means that many people are on the cusp of purchasing a new vehicle. For most people to do so, however, they will need to finance their new car.
However, car loan eligibility is something that many people do not understand. The good news is that it is much easier to copy hand than you think.
We’ve put together a quick guide on eligibility for car loan financing. Let’s explore everything you need to know.
Am I Eligible for a Car Loan?
There are a few key factors that will come into play when determining your eligibility for car finance. The two main ones are your credit score and your income.
Let’s explore each of these in more detail below.
Credit Score
As you might guess, your credit score plays a big role in your ability to finance a car. A higher credit score means you’re seen as a lower-risk borrower, which makes lenders more likely to approve your loan application.
Conversely, a low credit score can make it much more difficult to get approved for a car loan. In certain cases, you might not be able to obtain approval for the vehicle that you want. This will result in you having to either purchase a less expensive vehicle or put down a larger down payment.
If purchasing a new car is not imperative at the moment, you may even want to take the time to raise your credit score in order to get access to better financing options.
Income
It should come as no surprise that your annual income will play a large role in what type of financing you can secure. Lenders want to see that you have a steady income stream coming in each month.
This helps them to determine whether or not you’ll be able to make your monthly loan payments on time. For this reason, people who are self-employed or have other types of irregular incomes may have a more difficult time securing financing. If you’re employed, you’ll need to provide proof of income when applying for a car loan.
This can be in the form of pay stubs or tax returns. If you’re self-employed, you may need to provide additional documentation, such as bank statements or profit and loss statements.
Will I be Approved For a Car Loan?
In addition to your credit score and income, there are a few other factors that can come into play when determining your eligibility for car finance. These include your employment history, your current debts, and your financial history.
Lenders like to see a stable employment history when considering a car loan application. This means that you should have been employed at your current job for at least six months.
If you’ve been employed for less time than this, you may still be able to get approved for financing, but you may have to pay a higher interest rate. Your current debts will also be taken into consideration when determining your eligibility for a car loan.
Lenders want to see that you’re not currently overextended on other debts, such as credit cards or student loans. If you are, it may be more difficult to get approved for a car loan. Finally, your financial history will be taken into account.
This includes things like your payment history on previous loans and whether you’ve ever declared bankruptcy. A history of late payments or bankruptcies can make it more difficult to get approved for a car loan.
What Do I Need to Do to Apply For a Car Loan?
Now that we’ve gone over the eligibility requirements, let’s take a look at the application process. When you’re ready to apply for a car loan, you’ll need to fill out an application.
This can be done online, over the phone, or in person at a bank or dealership. You’ll need to provide some basic information, such as your name, address, and Social Security number. You’ll also need to provide information about the vehicle you’re looking to purchase, such as the make, model, and year.
If you’re applying for a loan through a bank or credit union, you may also need to provide proof of income and employment. As we mentioned earlier, this can be in the form of pay stubs or tax returns.
Once you’ve submitted your application, the lender will review it and make a decision. If you’re approved, you’ll be able to start shopping for your new car.
What if I’m Not Eligible For a Car Loan?
If your application is denied, don’t despair.
There are still some options available to you. One option is to try to get financing through a dealership.
However, dealerships often only work with a select few lenders and may be limited in their options for ex-bankrupts. Keep in mind, however, that you may end up paying a higher interest rate if you finance through a dealership.
Another option is to wait a while and try again later. If you’re denied a car loan, it’s usually because of something in your credit history.
If you wait a few months and work on improving your credit score, you may have better luck the second time around.
Finally, you could try to get a cosigner for your loan.
A cosigner is someone who agrees to sign the loan agreement with you and is responsible for making the payments if you can’t. This can be a friend or family member.
Keep in mind, however, that if you default on the loan, the cosigner’s credit will be affected. If you’re not eligible for a car loan, don’t give up.
There are still options available to you. With a little patience and perseverance, you should be able to get the financing you need.
What Are the Different Types of Car Loans?
There are two main types of car loans: secured and unsecured.
A secured loan is one that’s backed by collateral.
This means that if you default on the loan, the lender can take your collateral to cover the cost of the loan. The most common type of collateral is a car itself. This means that if you can’t make your payments, the lender can repossess your car.
An unsecured loan is one that’s not backed by collateral. This means that the lender can’t take your car if you default on the loan. However, unsecured loans usually come with higher interest rates.
Which type of loan is right for you will depend on your individual circumstances. If you’re confident in your ability to make your payments, an unsecured loan may be the better option. However, if you’re worried about defaulting on the loan, a secured loan may be the better choice.
What Are Ways I Can Improve My Credit Score?
If you’re having trouble getting approved for a car loan, there are some things you can do to improve your credit score. One thing you can do is to make sure you pay your bills on time.
This includes things like your rent, utilities, and credit card payments. Payment history is one of the biggest factors in your credit score, so it’s important to make sure you’re always paying on time. You can also work on reducing your debt-to-income ratio.
This is the amount of debt you have compared to your income. The lower your ratio, the better. You can reduce your ratio by paying down your debts or by increasing your income.
Finally, you can work on building up your credit history. If you don’t have much credit history, it can be difficult to get approved for a loan.
One way to build up your history is to get a credit card and use it responsibly. Make sure you always pay your balance in full and on time. After a few months of doing this, you should start to see your credit score improve.
What Should I Look For in a Loan Provider?
When you’re ready to apply for a car loan, it’s important to choose a lender that’s right for you.
One thing to look for is a lender that offers pre-approval. This means you can get an idea of what interest rate you’ll qualify for before you even start shopping for a car. This can save you a lot of time and hassle.
Another thing to look for is a lender that offers competitive interest rates. This is the amount you’ll pay in interest on your loan. The lower the interest rate, the less you’ll have to pay over the life of the loan.
Finally, you’ll want to choose a lender that has a good reputation. You can check out online reviews to see what other people have said about the lender.
Car Loan Eligibility Doesn’t Have to Be Complicated
Although car loan eligibility might seem complex, it’s easier than you might expect it to be. Keep the above guidelines in mind so you can avoid problems you may have otherwise dealt with.
Want to learn more about how we can help? Feel free to get in touch with us today to see what we can do for you.
