How much can I borrow for a car loan?

When it comes to car loans there is no set-in-stone rule regarding the amount you can borrow. In fact, some lenders have no limits as to the amount you can borrow. Others have caps set and minimum amounts apply.

The amount you can borrow ultimately depends on your individual situation and needs. During the application process you will be asked to provide information about your financials and cash flow to ensure you’ll be comfortable making repayments over the term of the loan. To help you plan ahead you can use online estimate tools or get in touch for a quote. 

How much you should borrow is something you should think about carefully. Research shows that the average Australian household spends 28% of their annual household earnings on their car, however the same research shows that the intended spend amount increases with income.

The most important thing is to not take out a loan that is beyond your means.

At RateSetter you can borrow between $10,000 and $100,000 to buy a new, demo or used car from a dealer or a private sale.

Car loans and borrowing limits

Car loans typically fall into two main categories: secured and unsecured. With a secured loan, the vehicle you purchase is used as collateral – a guarantee for the loan. If you default on your repayments your lender can take back the vehicle, sell it, and use the money to pay back the debt.

With a secured loan, the loan amount you are offered will be dependent on the value of the vehicle you are planning on purchasing. If you have not yet found the vehicle you want, your lender may offer pre-approval based on what they think you can afford to spend. 

The other main option – an unsecured loan – does not require collateral. Unsecured loans are issued and supported only by your creditworthiness, rather than the vehicle itself. They are higher risk for lenders and therefore generally attract higher interest rates, but there’s no risk to personal property should you default. As a result, unsecured loans are gaining in popularity. 

At RateSetter, we offer low-interest secured car loans from $10,000 to $100,000 for new and used cars under 7 years old. We also offer unsecured car loans with a minimum loan amount of $2,001 up to a maximum loan amount of $45,000 for cars of any age

When you complete your quote, we’ll provide you with an initial estimate of your borrowing capacity and the maximum loan amount you are eligible for. You will be able to apply for pre-approval up to this amount, however, we recommend you only apply for what you need to cover the purchase price of the car you are looking to buy or have budgeted for including on-road costs. Your pre-approval does not lock you and the final loan amount and repayment options can be changed as part of the settlement process.

When you arrange to buy the vehicle the lender will pay the car dealer/private seller directly. Whether or not you’re able to include additional upfront costs such as insurance and registration in the loan amount will depend on the lender and how much you’ve been approved for.

How lenders determine borrowing power

Lenders assess a variety of factors in your application before approving your car loan. These factors include:

  • Your credit score: Your credit score is often an important factor to consider when it comes to applying for a car loan, as it summarises your reliability as a borrower. The better your credit score the better loan deal you can secure.
  • Your total yearly income: Having a stable job means lenders may see you as a safer bet, and a higher income may mean you’re eligible for a higher loan amount. If your income is below a certain level, you may be rejected for loans above a certain amount.
  • The amount of savings you have: Lenders often look at people’s savings as a form of proof that they do in fact have money on hand should anything unexpected arise. Having a good amount of savings may be viewed by lenders as evidence that you are responsible with money and will also be more likely to meet your repayments.
  • Your regular living expenses: How much you spend on things like utility bills (gas, electricity), food and fuel costs may also be a significant factor. As well as these costs, your rent or mortgage repayments will likely be taken into consideration by the lender, along with your number of dependents.

Sebastian Paulin
Sebastian has over 12 years experience in consulting, marketing and finance. He has worked with Australia’s largest banks and emerging fintechs across lending, investing and insurance. Sebastian has a Bachelor of Commerce and Bachelor of Laws with Honours.

How much interest will I pay on a car loan? 

Most car loans charge either a fixed or variable interest rate on the amount you’ve borrowed. The interest you pay will depend on your loan’s interest rate. To calculate the interest you’ll pay take the outstanding balance and times it by the interest rate and number of payments per year. 

A ‘good’ interest rate has no definitive definition as different interest rates will be more suitable for different people. As a guide though, a car loan interest rate of around 5% is considered good, while a typical low-rate for an unsecured loan is around 6.5%. These low rates are generally restricted to green and new cars or for those with excellent credit rating.

At RateSetter we have low rate car loans from 4.69% p.a. (comparison rate 6.03% p.a.)* for up to $100,000 for new and used cars.

How much would I get approved for a car loan?

How much you get approved for can depend on your choice of car, the type of loan you choose and your financial circumstances. You may not be able to borrow the total worth of your vehicle but you may also be able to borrow more than your vehicles worth – enough to cover insurance and other vehicle costs. 

In short, there’s no set-in-stone rule for what you can borrow and how much you’ll be approved for. That said, if you have a good credit rating and you can show you’ll be comfortable making repayments, you could borrow $10,000 to $100,000 for new and used cars under 7 years old with RateSetter. We also offer unsecured car loans with a minimum loan amount of $2,001 up to a maximum loan amount of $45,000 for cars of any age.

How much do I owe on my car loan?

If you’re not sure how much you still owe on your car loan balance there are online calculation tools that can help you out. Enter the original principal amount borrowed, the annual interest rate, the original loan term in months, and a dollar amount for the original monthly payment. Then choose a month and year for the first payment you made, and then indicate how many months have passed since the first payment. This should give you a rough calculation.

Can I get a car loan with a bad credit?

Low credit is generally defined as a score under 629. You can have low credit for a variety of reasons, including a history of making late payments to lenders, identity theft, or simply not having enough years of credit history. 

If you have a bad credit score it can make borrowing money for a car difficult. That doesn’t mean it can’t be done, however. RateSetter offers a competitive price and flexible features even with low credit and can tailor a solution for you. With competitive interest rates and a quick approval process, RateSetter’s loan options are a great option for borrowers no matter their situation.

Does a car loan build credit?

A car loan can be a good way to build and improve your credit score because as you make payments on time, you begin to build a positive payment history. 

If you have a low credit score, demonstrating responsible lending habits and the ability to repay on time can work in your favour. Unlike Australian credit card issuers (who require applicants to have a good credit history to give approval) RateSetter loans are designed for applicants of all types. Taking out a car loan with RateSetter and paying your bills on time each month can be a fast and effective way to show you’re a responsible consumer.

What is a good credit score for a car loan? 

While it’s possible to get a car loan with a bad credit rating, it’s always easier to secure finance with a good credit score. Your credit score is an automated rating based on your current financial status and previous financial transactions.

This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.