Can I get a car loan if I am on a pension?

Anyone over the age of 18 can apply for a car loan as long as they have a steady income and can make repayments without falling into financial difficulty.

Your income may come from investments, assets or even government benefits, such as the Age Pension, Disability Pension or Veteran Payment. But keep in mind, your car loan options could be more limited than someone who is employed full-time. 

It’s a good idea to find out if you’re eligible for a loan before you apply. That way, your credit report won’t be negatively impacted and you’ll avoid paying multiple application fees.  

Will I be approved?

Before agreeing to finance your car, a lender will examine your income, savings, assets and expenses to determine whether you’ll be able to repay the loan amount, plus interest, without falling into financial difficulty. They will take into account your:

• Income received from pension payments and other government benefits
• Credit history
  
• Assets, including your home and savings
  
• Residency status – you will need to be an Australian citizen or permanent resident

A lender will compare your income with the car loan repayment amounts, to ensure you can easily meet your loan obligations. 

Play the odds

Here are 5 ways to improve your chances of having a car loan approved:

1. Make sure your income is high enough to easily meet the repayments for the loan you want.
2. Save for a deposit or look at buying a used car so you can borrow a smaller amount.
   
3. Make sure there’s no history of late payments on your bills (the occasional lapse is OK).
   
4. Use an asset as collateral. Using an asset as security against the loan, reduces the risk to the lender as they can use the asset to recover the cost of the loan if you are unable to make repayments down the track. It may also mean you can secure a lower interest rate on your car loan.
   
5. Have a family member or friend with good financial status and credit history act as a guarantor on your car loan. This means they co-sign the loan and agree to accept responsibility for the repayments if you default for any reason. Your guarantor acts as a type of security, making it less risky for your lender to loan you the funds.

Number crunch! 

Take the time to work out how much you can afford to pay each month on top of your current expenses. You can crunch the numbers on this useful calculator on the MoneySmart website. 

When comparing loan rates, make sure you’re aware of all the loan features and hidden costs including:

• The loan amount
• The interest rate
  
• The repayment period

Additional fees such as establishment, upfront late payment, account keeping, early exit and monthly administration fees

When comparing rates between lenders, be sure to check out the comparison rates. Comparison rates do the hard maths for you by rolling together the interest rate, upfront fee and service fee into one percentage figure. It gives you a more accurate understanding of the cost of your loan. 

In Australia, lenders are required to show a comparison rate as an annual percentage when they advertise an interest rate. It’s a helpful tool when researching the cost of the loan. Financial comparison sites like Canstar, Ratecity, InfoChoice and Mozo can help you find and compare the best deals on personal loans quickly and easily. 

Next steps 

Once you’ve made a short list of the best loan deals, be sure to read the Product Disclaimer Statement (PDS) which explains all the fees and loan features in detail. 

Remember, the best personal loans aren’t just about what’s written down in black and white. It’s worth checking customer service ratings and reviews to find a personal loan provider with a friendly, helpful and responsive team. Good customer service can make a big difference to your overall experience. 

Once you’ve decided on the best personal loan for you, contact the provider. Don’t be afraid to ask them as many questions as you need to, until you feel satisfied that you’re ready to commit.