How Much Can I Borrow for a Car Loan

how much can i borrow car loan

You want to buy your dream car, but you can’t afford to? No worries, this is where car loans come into play. If you’re asking yourself ‘how much can I borrow for a car loan’, this guide will provide you with all the information you need, including which factors determine this and how you can improve your loan capacity. 

Keep reading!

What Is Your Borrowing Power, and How Do Lenders Determine It?

Your borrowing power shows how much money you can pay back when taking a loan from the bank. In short, you can only borrow as much as your income and expenses allow you to. Whether you have a higher or lower car loan borrowing power largely depends on several factors which we will discuss below.

Factors that determine and affect your car loan borrowing power

A few factors can make or break your journey to getting the car of your dreams. These include:

  • Your monthly living expenses – i.e. what you waste your income on (e.g. food and housing expenditures). Banks determine this by calculating how much money goes into different segments of your life, so they’ll know if you have enough money for car loan payments. 
  • Your full income – if you have a lower income, you’re not exactly the car loan eligibility material. Banks may think that you won’t be able to repay the debt, and you might get rejected.
  • The number of people living in your household – lenders need to know if you have a large family to determine how much money you’ll be able to set aside for a car loan payment.
  • Rent and mortgage expenses – if you spend a lot of your earnings on rent or mortgage, and your total income isn’t enough to keep a steady financial balance, you probably won’t qualify for a loan.
  • Your credit history – checking your credit history is a standard procedure for whatever type of loan you want to get. You just have to make sure it doesn’t contain any defaults on payments such as rent, mortgage, or anything similar. This can cause you to have a bad credit score which can up to 7 take years to clear and prevent you from getting approved for a car loan.
  • The amount of savings you have in your bank account – this has to be checked by the bank to make sure you are capable of returning the borrowed money.

How to Improve Your Car Loan Borrowing Power

A good credit score in Australia is anything over 700. There are a few things you can do to improve your borrowing power and have a good credit score:

  • Cut your monthly living expenses – figure out what you mostly waste your money on and try to cut your expenses. This can increase your car loan borrowing power.
  • Make payments on time – to prevent your credit history from having any defaults (which can occur if you miss a rent or mortgage payment), try to make payments on time.
  • Make sure you always have some money saved – if lenders see you have some savings, this can improve your chances of getting a car loan (as this serves as a guarantee you have funds to pay the loan back).

How to Compare Car Loans

As with any purchase, it’s always a good idea to check which lenders offer which price for the same product (i.e. the car loan). Let’s see what you need to take into account when calculating car loans and comparing car loan prices.

Interest rate vs comparison rate

Make sure you are aware of the fact that while many lenders may offer the same interest rate, this doesn’t guarantee you’d pay back the same amount of money to whichever lender you’d choose.

To know the exact amount of money you’d pay back to a bank, you need to look at comparison rates. Aside from including the interest rate, comparison rates also include any additional costs (such as fees and charges) you’d have to pay when getting a car loan (e.g. when submitting a car loan eligibility application, you have to pay a certain amount of money). 

Therefore, if you want to apply for a car loan, you need to check comparison rates rather than just interest rates, as these give you a real picture of how much money you’ll have to pay back to your lender. 

Different types of car loans 

Lenders can give you loans for both new and used cars. Let’s see how these can differ:

  • If you want to get a used car,  you will have to apply for an unsecured loan with a higher interest rate. If the lender gives you an unsecured car loan, they won’t be able to sell your car if something happens to it, which makes it a tricky loan with a higher paying rate.
  • New cars are your go-to option if you’re looking for a lower interest rate, but they will still probably weigh heavier on the family budget. Lenders usually give secured loans for this purpose, and they take full responsibility for the security of your property, or in this case, your car.

Therefore, you should compare these two types of loans and see which one is better for you in the long run. In 2021, the average annual interest rate on an unsecured car loan in Australia was 10.50%.

Secured car loans, on the other hand, have an average interest rate of 7% per year.

Bottom Line

When applying for a car loan, you should make sure your income and savings allow you to have a high car loan borrowing power. You should also try to cut your expenses and make sure you have a good credit score history, which can help you with car loan eligibility. If you’ve been wondering ‘how much can I borrow for a car loan’, we hope this article has helped answer this and all other car loan-related questions.


1. Do I need a deposit for a car loan?

Unlike other loans, you won’t need a deposit if you get approved for a car loan. However, if you don’t have a credit history, you may be asked to provide a deposit. Keep in mind it’s always good to provide some amount as a deposit, as this will reduce your monthly payments. 

2. Is creditworthiness tied to my credit score?

Yes, your creditworthiness is determined by your credit score and credit history. It can largely affect your car loan capacity. If you’re wondering ‘how much can I borrow for a car loan’, this depends precisely on your loan capacity or borrowing power.

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