Do you need a large income to get approved for a car loan?

Applicants do not always need a large income to get approved for a car loan as approval is based on the credit score, eligibility, financials and the LVR. When assessing credit applications, lenders look at all the factors. While the salary or earnings will be important for the person to afford the repayments, a lower salary does not exclude an individual from being approved for vehicle finance.

Individuals in a lower salary band but with a strong personal balance sheet and good credit score can be approved. While high-earning individuals with high debt and less than good credit score may not be approved. Businesses with lower turnover can be approved by meeting other lender criteria such as providing additional collateral.

The salary or earnings requirements for finance approval can vary with individual lenders. Banks and non-bank lenders have their own guidelines and criteria for approving applications. Some may include a minimum personal income or business turnover level. Finding the lender that matches the applicant’s profile may be key to approval and an affordable finance offer. We assist both lower and high salary applicants find their most suitable lender with our access to over 80+ lenders.

Requirements to Get Approved for a Car Loan

There are different requirements for businesses and individuals for vehicle finance approval. Personal vehicle finance applicants must meet the requirements as set out by and regulated by ASIC under consumer credit laws. Business finance is not regulated in the same way and applicants must meet the individual lender’s criteria.

Applicants for personal loans must be over the age of 18 years, have Australian citizenship or acceptable visa, have employment, provide their financial documentation, ID, residential and other details. Businesses are required to have an ABN, ID, and provide a range of financial documentation on the operation for a minimum of 12 months. Some lenders also have criteria for minimum trading periods and minimum turnover. Businesses that do not have full documentation and do not meet minimum criteria may apply for Low Docs Vehicle Financing.

How Income to Get Approved for a Car Loan is Assessed

When applying for vehicle finance, the lender will assess the individual application for the borrowing capacity or power for that person. This is the amount that the lender is prepared to extend to that person at a certain interest rate. Borrowing capacity is based purely on income and expenses. The credit score and other factors are not assessed in determining borrowing capacity.

Lenders will use similar formulae and processes in determining borrowing power. What may be considered as a protection for lower earners is that lenders must abide by ASIC regulations when approving applications and making finance offers. These regulations include not approving a loan that is unsuitable or unaffordable for the individual. This only applies to personal loans.

Borrowing power provides applicants with an indication of what they can borrow, but not necessarily what car they can buy with finance. The amount being borrowed compared with the value of the vehicle is also key to getting approved for vehicle finance. This is known as the loan-to-value ratio (LVR). Where the loan represents a high percentage of the price or value of the vehicle, this may be considered a higher risk. A higher interest rate may be applied, or the application may be rejected. Using a trade-in or making a deposit to reduce the amount required for the loan can improve the LVR and the prospects for approval.

Know if You Have Enough Income to Get Approved for a Car Loan 

The quickest way to find out if you are earning enough to get approved for vehicle finance is to apply for conditional approval. But be aware, applying to multiple lenders for the same loan can result in a downgrading of the credit score. Using a broker to cover the lending market and source the loan does not affect the individual’s credit score.

Conditional finance approval is approval of an application prior to a vehicle being purchased. Applicants can lodge their application with an estimate of what they would like to borrow and an indication of the vehicle they are looking to buy. Applications are processed and the approved borrowing capacity and estimate of rates and repayments may be obtained.

Conditional approval may be sought a long way ahead of purchase. There is no obligation attached. When the time to purchase approaches, buyers can apply for pre-approved finance. This provides them with a specific finance quote which is valid for 1-6 weeks, depending on the lender.

Seeking approval prior to purchase can be a smart move. Buyers know if they are approved and for what amount. Allowing them to find the vehicle in a price range that suits their loan payments.

Tips for Lower Income Earners to Get Approved

If you’re unsure if you have sufficient income to get approved for a car loan, here’s a few tips from our experts:

• Use a broker to assist you find the right lender and advise you of your options.
• Improve your financials and personal balance sheet by paying off other loans and debts before submitting an application.
• Consider reducing the amount you need for the loan with a larger deposit and/or selecting a lower priced vehicle to reduce repayments to an affordable level.

To find out if you have sufficient income to get approved for a car loan connect with Jade Finance online or by phone. 

DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.