How much can I afford to borrow for a car loan?


Credit Union SA

Member Experience Team

If you’re ready to apply for a car loan or even just thinking about it, getting an understanding of what you can afford to borrow in advance is really important.

That’s why our car loan extraordinaire, AKA Product Manager, Ben Thompson is here to help you figure it all out and hopefully save you a lot of time and hassle.

So Ben, firstly, why is it important to work out how much you can borrow in advance?

So to get an indication on how much you might be able to borrow, this will hopefully assist in reducing the amount of applications you make, as you’ll only be applying for loans that are appropriate to you. This should therefore keep your credit history clear of any damaging applications. Well every time you apply for any type of credit including a car loan, the chances are it will be listed on your credit report. Regardless of whether the loan is approved or not, is likely to be registered as a credit enquiry. If lenders see multiple enquiries for credit on your credit report it may raise a red flag and potentially affect your chances of getting loans approved in the future.

How do lenders decide what you can borrow?

Lenders usually look at a few factors when determining how much you can borrow for a car loan. These can include:

  • Your monthly living expenses
  • Your monthly income
  • Your financial history
  • Details of the car you want to buy (e.g. price, make/model/year etc.)

Lenders might also use a formula called the Household Expenditure Method (HEM) to help them make a final call on how much you can afford to pay back.

Is it possible to improve your car loan borrowing power?

It is possible but it takes time.

A good place to start is checking your credit report (also known as a credit rating, credit history, or credit score.) This way you know exactly where you stand, and if you need to improve your score (and how). The lower your score is, the less chance the lender will be comfortable in providing you credit. So, the higher your score, the more options you’re likely to have.

The following websites offer free credit checks:

Some lenders even give you a better rate if you have a higher score!

It’s also a good idea to consider a long-term budget, which you should begin in the period leading up to your application, so that lenders can see responsible spending patterns, plus enough money for your monthly car loan repayments. This could be achieved by reducing your expenses where possible and remember that you will need to factor in your upcoming monthly car loan repayments and also fuel, insurance, registration, maintenance, and other miscellaneous expenses such as washing and cleaning.

Try to time your application for when you have a good credit score and an established budget – this should help improve how much you can borrow.

Also be prepared to give up some small luxuries to accommodate the car loan repayment. You might need to cancel your Pay TV and gym subscription to be able to afford to make the repayments - make sure you have a think about what you can comfortably forego.

As much as it might sound back to front, if you have just got a new job with a higher income … you might not be able to get a loan as easily as if you were still in your old job. That’s because lenders also look at how long you have been in your current role. So to build up your chances of getting the loan, try and get settled into your new job before applying.

How much can I borrow?

You can use our Borrowing Power calculator to get an idea of how much you can borrow. But remember, this is just an indication so it should just be used as an estimate to help you in your search.

Borrowing Power calculator

Get in touch today

If you’re wondering how much you can borrow for a car loan, we can help you get a better understanding. Give us a call on (08) 8202 7777 or visit us at 400 King William Street, Adelaide – we’d love to help.

Lending criteria, fees and conditions apply and are available upon request. This is general advice only and you should consider the terms and conditions before determining whether any of our products are suitable to your situation.

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