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Lenders getting increasingly personal with their car loans
A growing number of car loan lenders are offering personalised interest rates.
If you want to buy a car, but don’t have the cash to buy it outright, you might consider getting a car loan. For many, getting a car loan depends on whether your employment provides enough income for you to make repayments.
However, if you’re retired, or receive government benefits like the pension, you could be eligible. As long as you meet lenders’ criteria and prove you can cover repayments, a pensioner car loan could be for you.
Who is eligible for a Pensioner Car Loan?
Criteria for pensioner car loans may vary between lenders. It’s important you review each lender’s terms and conditions carefully before signing anything.
Generally, even if you are not working, your pension payments will be counted as income. Lenders assess your income to see if you can meet repayments under various interest rate scenarios.
Lender criteria can include:
Age restrictions: You must be over 18-years old to apply for a car loan - this is the same for pensioner car loans.
Income restrictions: Your pension must be enough to cover your repayments and expenses. 'Supplementary income' - either from employment or superannuation - may improve your chances of approval.
Residency restrictions: You must be an Australian resident to apply for a pensioner car loan. If you're in Australia temporarily, you may need to apply for a temporary resident car loan.
Pension type restrictions: You may be eligible if you receive the following pensions: aged or disability pension or Centrelink payments such as parenting or carer payments.
Some allowances, like Newstart, Youth Allowance and Austudy, may not qualify, and you could need to prove supplementary income.
Can I get a car loan on Centrelink payments?
If Centrelink is your main source of income, you may get a car loan if you meet the lender’s criteria. The big four banks may be less likely to provide you with a pensioner car loan if you are not in employment. However, smaller lenders, online lenders and credit unions could be more helpful.
To see if you qualify, check the minimum income eligibility on the loan you’re considering. If the loan amount is low, you may qualify for a short-term advance, but this is assessed on a case by case basis.
Who can get a pensioner car loan?
As the name suggests, pensioner car loans are loans available to people receiving a pension. Pensions are government payments provided to residents if they are unable to gain employment.
Types of pensions include age, disability and parenting pensions. They also cover pensions for carers of the elderly or disabled. If you're on a pension in Australia, you may be wondering what types of car loans are available to you.
What features of a pensioner car loan should you look out for
Unsecured pensioner car loans
An unsecured pensioner car loan is not secured by the value of an asset. These loans are more risky for lenders, and so may carry higher interest rates. Unsecured car loans are mostly available to borrowers who prove they are credible. This is because if you default on an unsecured pensioner car loan, the lender cannot repossess the car.
Secured pensioner car loans
Secured pensioner car loans are secured by an asset - usually the car - to reduce financial risk to the lender. If you default on your repayments, the lender can repossess the vehicle you have used as security. These are more common with car loans as the lender can sell the vehicle to recoup their losses if you default, reducing their risk.
Fixed rate pensioner car loans
Pensioner car loans with fixed rates have the same interest rate applied to the loan for the entire loan term. You agree to pay a set amount of interest each month, so your repayments never increase, which gives you certainty. However, it could also mean missing out on savings if lenders reduce their interest rates.
Variable rate pensioner car loans
The interest rate on variable rate car loans can change over the loan's term, at the lender’s discretion. This type of car loan can save you money if there’s a rate cut, as your repayments would fall. However, if your lender raises interest rates, your repayments could increase and you could end up paying more over the life of the loan than if you had a fixed loan.
Which is best, fixed or variable?
The best loan will depend entirely upon your financial situation. If you're on a pension, an unexpected increase in your repayment amounts could cause you ffinancial difficulties.
When you are restricted to a specific amount per month in income, and do not have the capacity to make any supplementary income, you may find a fixed rate loan works best. However, if you don’t want to miss out on potential savings, you could choose a variable loan but budget to cover an increase of up to 3 percentage points in the loan’s interest rate.
How much can you borrow with a pensioner car loan
The amount you will be able to borrow will vary from lender to lender, and will also depend upon your individual circumstances. Borrowing a smaller amount means you have less to repay.
If you can, try to save for a deposit. This will show the lender you are able to save money when receiving a pension and improve your credibility with the lender. It will also reduce the total interest you pay over the loan’s term compared to taking out a loan when you do have a deposit.
While you do not need to be employed to be eligible for a pensioner car loan, your options will be more limited than those open to someone who is employed. You may be required to agree to a shorter loan term, higher repayments or a higher interest rate. If you have supplementary income, like part time work or superannuation payments, the lender may increase your loan amount.
As you compare pensioner car loans, you may receive different interest rates from lenders as a result of your financial situation. Lenders charge higher interest rates on loans that are seen as higher risk. If you are a pensioner and you own assets, these can be used as security on a car loan to reduce the interest rate you pay as they lower the risk to the lender.
Before you decide on how much you want to borrow, be sensible about your budget. Look at your pension payments against your expenses and be honest with yourself about how much you can afford to repay. Assess your repayment capabilities prior to making any applications to check that repaying a loan is feasible.
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How can you apply for a pensioner car loan
If you qualify for a pensioner car loan, the next step is to conduct a thorough comparison of car loans from various lenders. This is because if you are rejected from a car loan application, it may negatively impact your credit score. Before you apply, make sure you meet the lender requirements for the loan of your choice. Or call the lender or a financial broker to speak to the experts before you make a decision.
What do lenders look for when approving a pensioner car loan?
As with all loans, lenders assess your financial situation before they agree to finance the purchase of your car.
When assessing your situation, lenders will look at:
- What type of pension you receive
- The ‘income’ you receive from pension payments
- Your credit history - this accounts for both positive and negative credit events
- The value of your assets (including your home, if you own one)
- Your residency status - are you a permanent Australian resident or citizen
- The proposed loan amount, and your ability to repay the principal loan amount
- The proposed loan term, and your ability to repay the interest on that loan
How do you improve your chances of being approved for a pensioner car loan?
Save for a deposit: if you are able to save a deposit before applying for a car loan, you can reduce the total amount you need to borrow. This will reduce the overall interest you will repay over your loan term, and you will show your ability to save.
Use an asset as collateral: you are more likely to be accepted for a car loan if you have an asset you can use as security against the loan. This reduces the risk to the lender, as they can recoup their losses by selling the asset you use as collateral. This can also result in lower interest rates on your pensioner car loan.
How do you choose the right pensioner car loan for you?
When it comes to financial products, there is no one size fits all. Choosing the right pensioner car loan for you will depend upon a variety of different factors:
- Do you prefer a fixed rate or variable rate loan?
- Do you want to buy a new or used car?
- Will you get an unsecured or secured car loan?
- How much will you borrow?
- Do you have supplementary income or do you only receive pension payments?
Creating a car loan budget
Before you get a car loan, new or used, it’s crucial to consider all costs, apart from the cost of the car itself. You will pay interest on the amount you borrow, along with various fees and charges, and the onus is on you to determine exactly how much that is.
When you create your car loan budget, you need to look at:
- Cost of the car
- Car insurance fees
- Registration fees / stamp duty tax
- Repairs and maintenance
- Fuel and road tolls
- Membership of roadside assistance organisations
- Monthly car loan repayments
- The loan term
- Car loan fees and interest
How much will you really pay?
As with any loan, it’s important to read the Product Disclosure Statement (PDS) or fact sheets for each pensioner car loan option you’re considering. These will outline all the fees and costs associated with your loan, some of which may not be prominently displayed.
You should be able to find these on the lender’s website, but these documents can often be missed. If you struggle to find the PDS or fact sheets for any loan product, ring the lender and ask for them to send it to you.
How to calculate your total repayments
Making sure you are aware of every fee and charge that could be applied to your loan is crucial for making the most informed financial decision.
To check how much a loan will cost you over the entire term, you can use our handy car loan calculator.
RateCity analysis shows that a $30,000 car loan with an interest rate of 8% per cent and an annual fee of $100 results in a monthly repayment of $617.
That equates to $6,998 in interest that you will pay on your loan over the five year term.
That’s 23% more than your original loan amount.
A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.
Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.
Some companies will advertise no credit check car loans, however under the Australian National Consumer Credit Protection act, credit checks are required by all responsible lenders, so such lenders are likely to have high interest rates. Depending on your income and credit history, you may qualify for a low interest StepUP loan from Good Shepherd Microfinance.
You might be better off finding a specialist lender who will look at your credit history and income, who will decide whether or not you are able to responsibility pay back the loan. Alternatively, you could contact a car finance broker.
You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.
Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.
That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.
One thing to bear in mind is that lenders who offer no credit check car loans are likely to charge higher interest rates and higher fees than on car loans that include a credit check. Also, lenders who no credit check car loans might expect you to pay a higher deposit. You might also be expected to provide security.
Lenders regard no credit check car loans as riskier than other car loans, which is why it’s a niche product that often features special conditions.
Even if you have bad credit or no credit history there are loans that are available to you through specialised lenders. Some lenders in Australia advertise car loan offers without running credit checks, however, the Australian National Consumer Credit Protection act requires lenders to loan money responsibly, so credit checks are normally required by all responsible lenders.