Car loan applications
How exciting! You’re about to apply for a car loan, and get yourself a new set of wheels.
But how do car loan applications work?
Well, the good news is, whether you are opting for a new or used car loan option, the application process is likely the same. So if this is your first time or you just need to brush up on the process, here's a full breakdown of what's in store.
Ready to pick your next car loan? Look below.
Car Loan Comparison Table - last updated November 21, 2020
New Car Loan
- Heritage BankHeritage Bank
New Car Loan
Secured Car Loan
How much should I spend?
First thing’s first - work out your budget.
Say you are looking at a car loan with a rate of 7.00% over a 5 year term.
While that $70,000 car with a reverse camera, bluetooth capabilities, leather seats, top of the line safety features, suspension and run flat tyres looks incredible - can you really budget $1,386 a month in repayments?
On the other hand, a loan amount of $21,000, and $416 per month in repayments, you can move the same amount of people around with a few less bells and whistles. It may not be the latest model, but you will be saving a fortune and more likely actually be able to afford the repayments.
Need a hand figuring out what your repayments could be? Check our our car loan repayments calculator.
Before you walk into a dealer with an absolute figure in your head, you need to be a little bit more realistic when it comes to your spending habits.
A way to do this is to print out last month’s bank statements including all credit cards and line them up.
Essentially, what you need to do is make a true observation on how you spend before making a big purchase like buying a car. This is serious stuff!
Tally up on a separate piece of paper what you spend on the following:
- utility bills
- credit card debt repayments
- rent or mortgage payments
- beauty and or hair treatments
- home/personal/income/car insurance
- mobile/home phone and internet connection
- going out
- budget savings etc
See? There’s so much to factor in. And when it comes to things like utility bills, also think of the bills you pay quarterly to work out a monthly average.
What’s left over? If you’re scrambling to find financial room to breath then it may be time to reconsider your spending habits. This could be eating out less or opting for cheaper options at the grocery store.
Compare Car loans
Now that you’ve worked out how much you can spend on car repayments, it’s time to compare loans.
As you probably already know this is not the easiest task with all the options out there. That's why our team of experts have built a Mozo car loan comparison calculator to help you along.
Just to give you an idea of what to expect to pay on a $30,000 car, check out some of the scenarios below, while using your new car as security on the loan:
Secured loan: Fixed rate
Car loan value: $30,000
Term: 3 years
|Lender||Rate %^^||Monthly repayments- 3 years|
|People's Choice Credit Union||4.65% (4.99% comparison rate*)||$894|
|Westpac||7.49% (8.68% comparison rate*)||$933|
|CUA||6.79% (7.16% comparison rate*)||$923|
Secured loan: Fixed rate
Car loan value: $30,000
Term: 5 years
|Lender||Rate %^^||Monthly repayments- 5 years|
|People's Choice Credit Union||4.65% (4.99% comparison rate*)||$561|
|Westpac ||7.49% (8.68% comparison rate*) ||$601 |
|CUA||6.79% (7.16% comparison rate*)||$591|
^^Rates shown correct as of 22 September 2020.
As you can see, by stretching your loan term by an extra two years, your repayments can end up being a lot less.
It makes the amount you pay more manageable and allows for other spending you need to make in the meantime.
If you need to ease it up a bit, even though you pay a little bit more in interest, with a fixed rate you know exactly how much you’ll be paying each month with no hidden increases (like with a variable rate).
How to choose a car loan
So by this stage, you’ve worked out your budget, used Mozo’s car loan comparison tool to weigh up the different products and lenders.
Guess what? Now you're at the point of having to bite the bullet and choose one. One product. One lender. You can do this!
We’ve discussed everything from budget to lender to type of loan, and the smaller features. But still equally as important is if you get charged an application fee.
If you find a loan that has a fee, ask yourself:
- How does it compare to competitors fees while comparing their interest rate?
- Are you better off paying a higher one-off fee for a longer term lower interest rate?
- Can I make extra repayments or pay off my car loan without being penalised?
What documents do I need to have ready?
Having all the right documents before walking into an appointment with a lender or jumping online means that you can complete your application a lot faster. You never know, you may even be approved within that day.
So with that in mind, to ensure a smoother car loan application process, make sure you have:
- Bank statements (up to 3 months)
- Tax returns (up to 2 years)
- Invoices that you’ve sent out if you’re a contractor (up to 3 months)
- Statement from your accountant or employer stating your income
- Drivers license
- Medicare card
- Amount of credit available to you (re: credit card credit, whether used or not)
- Typical monthly expenses including rent and mortgage repayments.
As each lender has different requirements, always check what your specific lender needs. They may want less or more from you than what we've listed above.
Top 5 tips on getting your car loan application approved
If you’re generally on time with paying your bills, your credit rating should be ship shape and you’ll be a pretty good candidate for making a successful car loan application.
But what can you do to help your application get across the line? Here’s a couple of things we thought we’d let you in on:
1. Residency: this is no secret. You absolutely must be an Australian resident.
2. Income: you need to be realistic about how much you earn compared to how much you want to borrow.
3. Bad credit history: you’ve got about 6 months to rectify it. Make sure you pay all your bills on time, even 3-5 business days in advance before the due date so that you never miss a payment or get charged a late fee. Set up a direct deposit so that you never forget.
4. Empty credit cards: well that’s good news! But if you’re not using them, you’re better off closing them as lenders see that potential credit used and thus a debt risk. The reason is that if you start using it, your potential lender may decide that if you’re overwhelmed in debt you’re at risk of not being able to repay the debt you owe them.
5. Security for your loan: not only will your interest rate be lower, but so will your repayments. Placing collateral as security on your loan will also give the lender confidence that you’re serious about paying off your car loan. Mozo advises using the car you’re purchasing on your loan rather than your house. It’ll be a pretty awful scenario to be forced to sell your house just to repay your car loan, right?
Ready to compare car loan options? Head to our car loan hub for some hot offers right now.
^See information about the Mozo Experts Choice Car Loans Awards
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