How do I apply for a car loan?

Applying for a car loan directly online is quicker and easier than you might think. And you might be surprised at how the value stacks up. Am I eligible?

Car loan application approval odds, eligibility requirements and how much you can borrow varies from loan to loan, and lender to lender. So what do most lenders in Australia tend to look for? 

For starters, you will need to be:

• Over 18 years of age, and in some cases over 21
• An Australian citizen or permanent resident
  
• Earning at least $25,000 per year, from a regular, proven source of income (If you are self-employed you will have to provide additional information)
  
• The holder of a provisional or full driver’s licence

If you have existing loans or debt, there may be fewer options open to you. It’s also a good idea to check the eligibility criteria for any specific lender you are considering before submitting an official application to avoid any unnecessary negative impact to your credit score. Some lenders will have a higher salary threshold for borrowers, and make a point of only lending to those with a high credit score.

What exactly is the process?

Once you have shortlisted your preferred lenders, you can usually request a quote or rate estimate, including your estimated borrowing power, before you officially apply. This is a good idea, as this process won’t affect your credit score. 

Depending on the lender, if you want to proceed, you can apply online, over the phone or in-person if the lender has physical branches. You’ll usually need to verify your identity, connect the lender to your online banking so they can verify your income and expenses and potentially provide additional information based on your car loan purpose. For example, if you are applying for a secured loan, you’ll need to provide information about the exact car you are providing as security. 

If approved, you’ll then need to accept your loan agreement. The majority of car loan agreements can be signed and accepted electronically.

What documents will I need to apply?

To process your application, a lender will typically ask you to show:

• Proof of identification: an Australian driver’s licence or a passport
• Proof of address: copies of your recent utility bills
  
• Verification of a stable income: payslips, bank statements or tax returns
  
• Details of your expenses and liabilities: bank, credit card and loan statements

Plenti has a streamlined online application portal, where you can connect your bank details securely. That’s one of the ways we make applying for a loan simpler, faster and easier than ever. 

What will your lender consider?

• Your employment stability
• Your income (e.g. salary, rent, interest, etc.)
  
• Your expenses (e.g. mortgage, groceries, etc.)
  
• Your repayment history on other loans
  
• Credit agency/bureau information  (credit report and score/rating)
  

These findings will determine if you’ll be approved, and if so then for how much you’ll be able to borrow. Often the interest rate offered will be lower if you have a good credit rating. If you’ve had problems paying your bills and debts in the past, you may only be offered a loan at higher rates.

What is my Credit Score?

Based on the information in your credit report, your credit score, or rating, is a single number that sums up how trustworthy you are as a borrower. Credit scores are typically on a scale of 0 – 1,200 or 0 – 1,000 depending on the credit agency. The higher your credit score, the more ‘reliable’ you are perceived to be and the greater the likelihood of your loan being approved, at a lower interest rate.

Now that the industry uses comprehensive credit reporting (CCR), credit reports are more detailed so that lenders have a better picture of both the positives and negatives. 

To calculate your credit score, credit agencies will assess:

• How much money you’ve borrowed in the past
• How much credit you currently have
  
• How many, and what type of credit applications, you’ve made (This can now include payday loans and buy-now-pay-later services such as AfterPay)
  
• Whether you usually pay your bills and loan repayments on time
  
• Any loan defaults
  
• Any court judgments
  
• Information from your bank, telco, insurance and utility companies
  
• Your age, address and employment situation
  
• Up to two years of your general financial history

You can request your report and rating/score from credit rating agencies before you go through with a loan application. This does not usually impact your credit score. Be aware that because there are multiple credit agencies, the information your lender uses may not be exactly the same.

Get a free credit check from one of Australia’s major credit rating agencies: Equifax, Experian or Illion.

How do I improve my chances of getting approved?
Applying for a car loan has the potential to impact your credit score, particularly if your application is declined. Therefore, it’s important that you put your best foot forward before beginning the application process. We’ve assembled a useful selection of tips to help you submit a strong loan application.

Make sure you pay your existing debts on time. Did you know that repayments that are more than 14 days late may be recorded on your credit file? While less serious than a default, a series of late repayments can have an equally negative impact on your credit score. Making late repayments also sends a bad message to a prospective lender and may result in you paying higher interest rates.

If you do ever find yourself behind on your repayments, it’s important you contact your lender directly. Working with your lender toward a mutually beneficial outcome can help to protect your credit score. Remember, it’s far easier to protect a good credit score than it is to improve a weak one.

Only request as much as you need to borrow. When assessing your application, a lender will look at whether you can service a loan. Essentially, this evaluates whether, after all your expenses, you have income left over to meet the repayments of your proposed loan.

If you request an amount that is more than your finances say you are able to repay, it’s highly unlikely you will get approved. In some cases, a lender may offer you a longer car loan term to reduce your repayments, but it’s best to do your homework first. Use a repayment calculator and budget to figure out what you can reasonably afford.

Review your credit history. Australia has three main credit bureaus, Equifax, Illion, and Experian. You can request a free copy of your credit score once a year. Once you’ve verified your identity (i.e. with a driver’s license, passport etc.) the bureau is required to provide you with your credit report within 10 days. Your credit report will provide an overview of your credit history, including previous loans, existing debts, and your performance as a borrower.

You should ensure all the information contained in your credit report is accurate, and if not, contact the bureau to have it remedied. This will have a direct impact on your credit score. If you’re unsure of how to interpret your credit score, see this ASIC guide.

Pay down existing debts. Lenders may look unfavourably on an application for individuals with large amounts of debt, particularly if the debts are already at the limits of what you can afford. It’s important to demonstrate a concerted effort to repay your existing debts to a reasonable level.

This applies even if your personal loan is for the purpose of consolidating your debt. While a move to lower interest rates makes sense, it may be hard to get approved without opening up some additional capacity between your income and expenses.

Minimise your credit card balance. Using a credit card can be a great way to help boost your credit rating by demonstrating you are financially responsible. However, you need to manage your credit card carefully to ensure your balance is consistently low.

Failure to make repayments can have an equally negative impact on your credit score. Finally, lenders are now required to assess your application based on your credit card limits, not the outstanding balance. If you have unused cards or excess limits, look into reducing them before you apply for a new loan.

Within the advertised range, most lenders apply loan capping rules. This means they adjust the maximum loan amount you may be eligible for based on your credit score, income, mortgage status and a range of other factors. This maximum loan eligibility will usually be communicated to you when you get an initial quote or rate estimate from a lender.

Even once you have applied with a lender for a specific loan amount, they may come back to you with a ‘counter-offer’. A ‘counter-offer’ is a conditional approval based on a loan amount that is lower than the amount you’ve requested but one the lender believes you can afford and meets their responsible lending requirements. Whilst it may be tempting to borrow as much as you can, make sure your repayments will be realistic to make within your budget. This will be a significant factor in determining whether your loan will be approved.

At Plenti, we assess your loan application in line with our credit criteria and our responsible lending obligations. Whilst no guarantee, following the tips above will go a long way to improving the prospect of successful loan approval.

How long will it take to get approved?
At Plenti, once your car loan application is approved (and you have accepted your loan contract) your funds are transferred into your account the following business day. 

The funds will be transferred  into the same account that you have nominated for your direct debits.