Do you need a high income to get a car loan?

Income versus what's left over

Lenders are less interested in how much you earn than in how much is left once your existing commitments and living costs are covered. Someone on a modest wage with few debts may have more room for a car loan than a high earner with large debts and big expenses.

For personal car loans, lenders must follow responsible lending laws, which means assessing whether the loan is suitable and whether you can afford it without substantial hardship. Business lending is assessed under each lender's own criteria.

What else lenders look at

• Your credit history and how you've managed past credit
• Your existing debts, including credit card limits
• Your living expenses
• Stability of your employment or income
• How much you're borrowing compared with the car's value, known as the loan-to-value ratio
• The vehicle itself, including its age and type

Why the loan-to-value ratio matters

Borrowing close to, or more than, the value of the car is riskier for a lender. A deposit or trade-in reduces the amount you need to borrow and can make an application stronger. Choosing a less expensive car can have the same effect.

Find out where you stand first

A pre-approval (sometimes called conditional approval) before you shop tells you roughly how much you may be able to borrow, so you can look at cars in the right price range. Be wary of lodging applications with lots of lenders yourself, as each formal application can be recorded on your credit file.

Ways to strengthen your application

• Pay down or close debts you don't need, including unused credit card limits
• Keep bills and repayments up to date
• Save a deposit, or use a trade-in
• Keep your borrowing to a level that leaves comfortable breathing room in your budget
• Talk to a broker, who can match you with lenders whose criteria suit your situation

General information only

This article is general information only. It does not take your personal circumstances into account and is not personal credit, legal, tax or financial advice. Lender criteria differ, and approval is never guaranteed. All finance is subject to lender assessment and approval.

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