How much can I borrow for car finance?

Updated On October 15th, 2022By Dynamoney

When looking at car finance to buy a new or used car, one of the first questions you will need to consider is how much I can borrow. Knowing up front how much you can borrow for car finance (i.e., your borrowing power) will help you to stay on budget when shopping around for the right car. It will also increase your chances of obtaining pre-approval and being approved for a car loan when the time comes to apply.

One important thing to keep in mind is that when working out how much you can borrow, multiple hard credit checks can damage your credit score. Therefore, it is best to first select the lender that you feel has the right loan option to suit your needs so that you limit the number of applications you submit. It is also advisable to check that you meet the eligibility requirements of the loan you are considering. Eligibility criteria tend to vary slightly from lender to lender, but for a general guide, the below can be helpful to keep in mind.

Generally, a car finance lender will require you to:

1. Be an Australian resident or hold a permanent residency
2. Be at least 18 years of age
3. Meet the required minimum income requirements of the chosen lender
4. Have a good to excellent credit score
5. Provide information about the vehicle you wish to purchase and any additional insurance. This is particularly important when it comes to secured car loans.

If you are a business customer looking to obtain car finance with Dynamoney, we also require the following additional criteria to be met:

1. All commercial applicants must have a registered ABN
2. You must have been trading in business for a minimum of 12 months
3. You need to be GST registered

Figuring out your car finance borrowing power

First things first, your borrowing power refers to the amount of money a lender will lend you to purchase a new or used car. This is determined by looking at and assessing your income and expenses, assets and liabilities/debts, for example, credit card debts, or HECS debts, etc. They need to work out how much they think you can afford to pay back comfortably, and therefore the amount they are happy to lend you.

Doing your research and working out your borrowing power will help you to know if you can manage a car loan once approved. When considering your borrowing power, the lender will also look at the interest rate and any associated fees and charges to work out your repayment costs.

As an example, if you earn $80,000 per year and spend approximately 50% on expenses such as rent/mortgage, bills, food, etc, this means you have $40,000 disposable income. Also consider that you might use say 20% of that on other purchases such as going to the movies, out for dinner, sports events, holidays, etc. Which then leaves you with $32,000 leftover.

$32,000 disposable income shows the lender that you could comfortably pay back a $60,000 loan over five years, if you don’t run into any unforeseen circumstances such as losing your job, falling ill and being unable to work etc.

How to estimate the amount of my loan repayments ?

A simple way to work out ‘how much can I borrow for car finance’ without submitting numerous car loan applications, which can damage your credit score, is to use a car finance calculator. Dynamoney’s car loan calculator can help you estimate your approximate repayments based on the amount you are looking to borrow, the type of vehicle (new or used) and your preferred loan period. It also enables you to ascertain how much interest you will be repaying over the life of the loan.

Once you have this information on hand you are then able to look at your income and expenses to determine if you can afford to make the estimated repayments. It is wise to do this before applying for pre-approval or submitting a car loan finance application, to avoid hindering your credit score. 

Creditworthiness. What is it and why does it matter when working out how much I can borrow for car finance?

Your creditworthiness is determined by your credit score. Your credit score along with your credit history is used by lenders to determine how likely you are to keep up with your car finance repayments.  Credit scores outlines things including other lenders you might owe money to, the amount of credit you have borrowed in the past, how many times you have applied for credit, as well as any unpaid or maxed out credit amounts and unpaid debts or bankruptcy documentation.

A high credit score means higher creditworthiness and an increased chance of being approved for car finance. Basically, a high credit score indicates that you are low risk. A low or bad credit score can make obtaining car finance a more difficult process and often means you will be required to pay a higher interest rate if approved, as you will be seen as a high-risk borrower.

Once I have established how much can I borrow for car finance, how do I apply?

Depending on how prepared you are, applying for car finance can be quite a simple and quick process. To ensure a smooth and timely application and approval process it is advantageous to have all your documentation ready to go before you apply. Be sure to have your 100 points of ID ready, along with your bank statements, income tax returns, pay slips and any other documentation the lender may require.

For more detailed information about car finance approval, check out our comprehensive guide. Or if you are ready to apply, you can simply fill out our online application form, or contact one of our lending consultants on 1300 001 420.

Commonly asked questions when determining how much I can borrow for car finance

What is a comparison rate?

A comparison rate is the car loan interest rate plus all major fees and charges associated with the loan, expressed as a percentage per annum (per year). However, this doesn’t include things such as early exit fees or refinancing fees, if applicable.

How can I work out how much can I borrow for car finance?

First up you will need to look at your disposable income and your expenses to work out how much you can borrow and afford to pay back. The easiest way to do this is to use Dynamoney’s car loan finance calculator.

Check out which brands we offer finance for, including  Ford Finance,  Mazda Finance , Hyundai Finance, Honda Finance and more.

How can I check my credit score and credit history?

In Australia, you can check your credit score for free by filling out an application through one of the three major credit reporting organisations. You can do this for example through Equifax.

What is proof of income?

Lenders will require proof of income before approving your car loan application. Proof of income is documentary evidence that outlines how much you earn. Tax returns, pay slips and bank statements are most commonly required to establish proof of income. A lender requires proof of income as they need to make sure you have the financial capability to repay the loan.

If you would like more information about applying for a car loan or are ready to apply, contact one of our experienced lending consultants today, or simply fill out our online car loan finance application form.