Have you put off buying a car because of difficulty organising finance? You’re not alone. New research has found that fewer Aussies have been buying cars, in part due to tighter restrictions around car loans.
According to the Federal Chamber of Automotive Industries (FCAI), October 2019 was the 19th consecutive month of decreasing new vehicle sales, with sales down 9.1 per cent compared to October 2018.
FCAI chief executive, Tony Weber, said that while drought and other domestic conditions have affected new vehicle sales this year, his key concern was the over-regulation of the financial sector:
“The FCAI and our members have been concerned about the risk averse approach to lending in Australia for some time and see improved access to finance as a key to driving economic growth in 2020.”
While organisations like ASIC and APRA have recently begun rolling back some financial regulations (particularly around home loans), many banks and other lenders are still being very careful when it comes to risky loan applications.
To help improve your chances of getting a car loan approved, you may want to think about one or more of the following:
- Check your credit score – A responsible lender will perform a credit check when you apply for a car loan. If you have a bad credit score, your car loan may not be approved. This is because the lender would worry that you may not be able to pay back your loan. Before you apply for a car loan, consider checking your credit score to find out ahead of time if you’re likely to run into trouble.
- Improve your credit score – Most credit agencies will let you order one free copy of your credit report per year. If you find any errors in your credit history, you can contact the parties involved to try and get these fixed. It’s also possible to improve your credit score over time by showing you’re a responsible borrower. Positive credit behaviours include paying your bills on time, paying off your credit cards and outstanding loans, regularly saving money and regularly checking your credit score.
- Check you can afford the loan – Most lenders will look at your income and expenses to work out if you can comfortably afford car loan repayments without ending up in financial stress. Before you apply, use a car loan calculator to work out what impact it could have on your household budget.
- Have your documents ready – To apply for a car loan, most lenders will require you to confirm your identity, address and income. This may require a driver’s license or passport, utility bills, payslips or bank statements. If you can’t provide these documents, such as if you’re self-employed and don’t have payslips, low-doc car loans don’t require as much paperwork but tend to have higher interest rates.
- Check security requirements – Secured car loans often have lower interest rates than unsecured car loans, as this reduces the lender’s risk. However, because these loans are secured by the vehicle’s value, you may be limited to buying more expensive new cars. Before you apply for a secured car loan confirm that the car you’re buying can be used as security.
- Ask for help – Consider contacting an accountant or financial counsellor for personal advice on what types of car loans may be best suited to your situation.