Car loans for temporary residents
Australia's temporary residents may find it harder to apply for some car loans than others. Compare car loans for borrowers on visas, and see which options may be right for you.
Are you a temporary resident living in Australia? If you want to see all of this beautiful country by car, but don’t have enough cash to buy one, a car loan might help you.
Getting a car loan on a temporary resident visa can be tricky, but it’s not impossible. Depending on your income, visa status and employment, you could be eligible for a car loan to get you on the road.
What types of car loans are available to temporary residents
Car loans for temporary residents are essentially the same as car loans for permanent residents, but with stricter lending criteria.
Before you start your loan application process, it’s a good idea to review the type of car loan that best suits you. Temporary residents, if eligible, can choose between a secured or unsecured car loan with either a fixed or variable interest rate.
Secured: Temporary residents are usually offered secured car loans, as these provide a higher level of security to the lender. Secured loans use the car being bought as collateral on the loan. This means that if the borrower defaults on their loan repayments, the lender can repossess the vehicle to cover their losses.
Unsecured: It is rare to find a credit provider that will provide an unsecured loan to a temporary resident. This is because an unsecured car loan represents a higher risk to the lender. If, however, you have been living in Australia for several years, own your own home and have a high income, some lenders might grant you an unsecured loan.
Fixed Rate: Fixed rate car loans have a set interest rate that does not change over the length of the loan. Non-resident loans often have short loan terms, so fixed rates make it easier for the lender to calculate interest costs, and also easier for the borrower to budget for repayments.
Variable Rate: Variable rate car loans can be available to non-residents, but this is not as common as with fixed rate loans. The interest rate charged might vary over the loan term. However, as temporary resident car loans often have short terms, this may not be the case.
What are the lending criteria for temporary residents in Australia?
Car loans for temporary residents represent a higher risk to the lender as you are in Australia temporarily. Even if you plan to stay for the long haul, the legal uncertainty of your residency can impact upon your car loan application.
The higher risk means to lenders mean they apply stricter lending criteria compared to car loans for permanent residents. These criteria can vary from lender to lender, and are worth noting before you decide which car loan is best for you. Essentially, you need to prove you are a trustworthy and credible borrower.
Eligibility criteria will vary between lenders, but on the whole they will look at your:
Income Stream: Many lenders will require you to earn at least $50,000 per year, from a regular income stream.
Australian Credit Rating: When applying for a loan, lenders will look at your credit rating in Australia only; overseas credit ratings will not be considered.
Visa Length: Before you apply for a car loan, consider how long you have left on your visa. Car loan terms will usually be a minimum of two years, so if you have less than one year left on your visa, you probably will not qualify for a temporary resident car loan.
Visa Type: If you’re on a student or working visa with a path to permanent residency, this could positively impact upon your application. However, if you are on a holiday or bridging visa with no expiry date, this could negatively impact on your application. If you’re unsure of your visa type, you can check your status on VEVO.
Can you get a temporary resident car loan with bad credit?
The good news is that if you have a bad credit rating overseas, Australian lenders will not consider this in assessing your loan eligibility. This means that if you have a good credit score in Australia, you may still be eligible for the loan.
However, if you have a bad credit rating in Australia, it will be more difficult for you to get approval for a car loan. Paying bills on time via direct debit or making monthly rental payments can help improve your credit rating and should be considered before applying for a car loan.
Remember that applying for multiple loans in a short amount of time or getting a negative credit rating will damage your overall credit score. This could affect your ability to get the car loan you desire. Applying for more money than you need is usually not a good idea either, as a higher amount will mean higher repayments and potentially higher interest and you may get knocked back if you can’t afford the repayments.
Can you get a car loan on a 457 or 482 Visa?
As of March 2018, the temporary work visa (457) was replaced with the temporary skill shortage visa (482). All temporary residents, regardless of whether you are on a 457 or 482 visa, will have their car loan applications assessed on their ability to repay the debt in the time they are expected to stay in Australia.
Is the process the same?
The process of applying for a car loan on a 457 or 482 visa is similar. While each lender has their own criteria, temporary residents will need to supply more documentation to prove their eligibility, and affordability tests are more stringent.
Who is eligible?
Temporary Skill Shortage (TSS) visa holders who have been working in Australia with the same employer for three years may be eligible to apply for Permanent Residency through the Transitional (TRT) Stream. This path to permanent residency for temporary residents on a 482 visa may improve their chance of securing a car loan, however, it depends entirely upon the lender and their eligibility criteria.
How to increase your chance of car loan approval
A non-resident's ability to get a car loan will depend upon the lender’s criteria, their visa and financial situation. However, there are a few things non-residents can do to improve their chances of getting a car loan before beginning the application process.
Check visa expiry dates: Applying for a car loan when you have enough time left on your visa to account for a two to five-year loan term may improve your chances of approval. This is because the loan term for temporary residents always ends at least three months before your visa ends.
Proof of Australian residence: If you can prove that you are renting, or even own an Australian residence, you may have a greater chance of receiving approval on a car loan. Paying monthly rent and expenses from a savings account and providing bank statements to the lender is a great way to prove that you can meet loan repayments.
Do not breach your visa requirements: Working visas often come with certain requirements, such as restricting working hours and choice of employers. Many non-residents can only work with one employer, for a certain number of hours per week. If you breach your visa by either working more hours than stipulated or having multiple jobs, you may not be denied a car loan.
Save a cash deposit: Cash savings put borrowers in good stead when applying for car loans, especially when a deposit is needed and you must prove you earned it. If you can prove that these savings have been held in an Australian bank account, as a result of receiving regular, stable income, this will put you in a better position to get your car loan approved.
Prove regular, stable income: If you receive a steady income in an Australian bank account, you may increase your chance of loan approval. Many lenders look for income earners over $50,000 per year, who earn regular income throughout the year. Seasonal income, regardless of whether it amounts to a larger amount, is often viewed less favourably than continuous, regular income.
Case Study: Lee and Anna apply for a car loan
Say for instance Lee is a temporary resident from Canada, and he is on a 457 visa that expires in six months.
His friend, Anna, is also a temporary resident from Canada, but she is on the 482 TSS visa that expires in four years. Lee will need a lender to agree to a car loan term of three months, which is highly unlikely.
If Anna can prove she is a reliable candidate, she has a greater chance of approval as the lender can offer her a loan term of up to three years and nine months.
How to compare temporary resident car loans
Before you decide which car loan is best for you, it’s important to compare the different car loans available on the following features:
Loan term: The loan term on a temporary resident car loan is usually restricted to ending no less than three months before the expiry date on your visa. As loan terms are often around two to three years, it can add up to high monthly repayments. Make sure you calculate your car loan repayments to ensure you can afford them.
Hidden fees: After you have reviewed the repayment amounts, you need to dig a little deeper into each car loan you consider. Many fees for car loans - including application fees and ongoing monthly or annual fees - are hidden. Make sure you read the Product Disclosure Statement (PDS) and any other documents before you agree to a car loan.
Flexibility: Another key feature to look at when comparing car loans for temporary residents is their flexibility. If you manage to secure extra funds, potentially as a gift or at tax time, you may want to pay off your car loan quicker than agreed. Some lenders charge early exit fees when borrowers repay their loan early, to recoup the interest you would have paid if you made repayments over the agreed loan term. Before you sign anything, make sure you read the fine print and check if you will be charged any fees for early exit or extra repayments.
Lender reviews and reputation: Once you compare the fees, term and flexibility of the loan, and you have a few options in mind, the next thing to do is a little online research. Search for consumer reviews about the lender and the specific loan you want to apply for. You can do this by searching for [Loan Name] [Lender Name] Customer Reviews. Look out for third party review sites that are subjective, and not just the reviews the lender shows on their website. If the loan looks too good to be true, it probably is.
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Business Finance Writer
Rachel Wastell is an award-winning writer with a knack for translating complicated subjects. She is a strong environmental advocate, and is as passionate about the planet as she is about finance and open education. Writing professionally for almost ten years, Rachel's work has been published across the Australian media landscape including the Australian Financial Review and The Guardian, and she regularly contributes to Business Insider and Lifehacker.
Frequently asked questions
Where can I get a student car loan?
Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.
A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.
Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.
To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.
What is a secured car loan?
A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.
What is a guarantor car loan?
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.
How to find a great car loan
Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.
To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.
Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.
Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.
When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:
- Choosing a low interest car loan can reduce costs
- Selecting an option with low fees and charges is ideal, because these can really add up
- Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
- Consider the features that best suit your situation
There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.
What is a guarantor on a car loan?
A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.
Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.
Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.
What is a loan term?
The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.
How do you get a car loan?
There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.
Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.
Can I get a discounted student car loan?
Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.
Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.
As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.
What is the role of a guarantor on a car loan?
The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.
Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.
Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.
What are loan repayments?
Loan repayments are the regular payments you make to pay off your car loan. Loan repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.
Can I get a car loan with bad credit?
Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.
You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.
If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.
What is collateral?
Collateral, or security, is an asset you agree to surrender to a lender if you fail to repay a loan. Generally, the collateral for a car loan is the car itself. So if you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.
What is a refinance?
A refinance is when you swap one car loan with another. For example, you might take out a car loan with Lender X because it is the best on the market at the time – but two years later, you might switch to Lender Y because you discover that it now has the best loan. Conditions and fees often apply when you refinance.
I’ve been denied a car loan before; can I still get car finance?
Even if you’ve been denied a car loan before, you might still be able to get car finance. The key is to make the right application to the right lender.
The ‘right’ application is one that makes you look like an acceptable risk, which might include things like improving your credit score, increasing your savings rate and accumulating a bigger deposit.
The ‘right’ lender is one that deals with borrowers like you. For example, while some car loan lenders only deal with good credit borrowers, there are others that specialise in bad credit or poor credit borrowers.
What are the pros and cons of guarantor car loans?
Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.
Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.
However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.
Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.
Can I get a car loan with poor credit?
Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.
In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.
However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.
Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.
What is a loan-to-value ratio?
The loan-to-value ratio, or LVR, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have a loan-to-value ratio of 75 per cent. Loan-to-value ratios change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the loan-to-value ratio would now be 67 per cent.
What is dealer finance?
Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.
What is CTP insurance?
CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.