KEY TAKEAWAYS
|
If you’re looking to get behind a new steering wheel, but don’t have enough savings, you’ll probably be weighing up your car finance options.
The problem is that securing car finance can be confusing, and a simple misstep can leave you with more than a few headaches.
A small mistake during your application might cost you valuable time and lead to a rejection. Or worse, you might get approved by a misfitting lender and end up with unfavourable rates that put you under financial stress.
Thankfully, getting approved for a car loan isn’t a matter of luck. By taking the right steps, you can maximise your chances of a fast, smooth process with a competitive rate.
If you’re ready to apply for car finance with confidence, here’s our step-by-step roadmap.
Table of Contents
STEP ONE: Check your credit score
Your credit score plays a crucial role in determining if you qualify for car finance.
To lenders, a higher score signals stability and financial responsibility. That’s why borrowers with good credit scores tend to experience:
- Faster approvals
- Access to more lenders
- Fewer supporting documents required
Your credit score also significantly impacts the interest rate you’re offered:
Higher score → lower interest rate
Lower score → higher interest rate
It’s worth pointing out that your credit score isn’t everything.
Lenders will look at things like your income, debts, employment type and your chosen vehicle make and model. Those additional factors are why lenders still approve borrowers with low credit scores.
Since higher scores do unlock more favourable rates and terms, it’s worth knowing what yours is. Making things easier, you’re entitled to one free credit report every 3 months from the main credit reporting bodies (Equifax and Experian) – so it’s easy to find your current score.
Once you find your credit report, check for any administrative mistakes, such as a debt listed twice or an old utility account marked as unpaid that you actually settled years ago. Disputing and clearing these errors before you apply can help your credit score more accurately reflect your true financial position.
Looking for more ways to improve your credit score? Read our How to Improve Your Credit Rating guide for practical tips that really work. 👈
STEP TWO: Reduce existing debt
Each financial commitment, like credit card debt or other loans, can lower your chances of approval.
The more times you take out a loan or borrow money against a credit card limit, the more you’re borrowing compared to your income. This is known as your debt-to-income (DTI) ratio.
Lenders look at your DTI to measure if you can safely afford car loan repayments on top of your existing expenses. If you want to improve your chances of approval, it’s helpful to consider paying down any existing debt to improve your debt-to-income ratio.
Other popular debt-management strategies include:
- Paying off high-interest credit cards (Avalanche method) or clearing smaller balances to free up monthly cash flow (Snowball method).
- Consider rolling multiple debts into a single personal loan (known as debt consolidation), which can result in a single lower monthly payment.
- Avoid using credit cards for new purchases to prevent accumulating new debt while you work on improving your DTI.
|
FIDO SAYS: STEP THREE: Sort out your job stability
Lenders generally require 3 to 6 months of continuous employment at your current job, though a 2-year stable work history within the same industry can also help unlock the best interest rates.
If you have a history of frequent job changes or long employment gaps, lenders might view you as less stable, which can decrease your chances of approval.
To prove your employment history, lenders typically request:
- Payslips: Your two to three most recent payslips.
- Bank Statements: Three to six months of bank statements.
- Employment Letter: Confirmation of your job title, base salary, and employment status (e.g., probationary vs. permanent)
Navigating a loan approval during a probationary period or with a fresh ABN is possible, but it often restricts you to specialised lenders with higher interest rates.
If you’re planning to change jobs, shift from full-time to casual hours, or start your own business, it can be a good idea to lock in your car finance pre-approval before shopping (more on that below).
STEP FOUR: Audit your potential vehicle
The car you choose and where you’re planning to purchase it from can have a massive impact on whether your loan gets across the line. If you’re opting for a secured car loan (where the vehicle acts as collateral for the debt), lenders typically have strict rules.
Common restrictions include:
Car age
Finance may only be available for cars that are less than 10 years old or have a certain mileage. If you’re buying a classic 2012 model on a 5-year term, a standard secured loan might get knocked back.
Car value
Lenders consider the ratio of the loan amount to the car’s market value (Loan-to-Value Ratio, or LVR). Cars are used as collateral for secured loans, so lenders rarely allow you to borrow more than the vehicle’s actual value without putting down a deposit for the difference.
Car type
Some lenders do not accept certain vehicles, such as luxury or exotic cars, or may not finance vehicles used for commercial purposes. Some lenders may also restrict lending to applicants of a certain age for high-performance vehicles.
Car condition
Older, cheaper, or rapidly depreciating cars are riskier for lenders to finance, while used-car loans often feature higher interest rates than new-car loans. Lenders may also have restrictions on the car condition. For example, they may not finance cars that have been in accidents or have significant damage.
✋ATTENTION: Don’t apply for a loan without reading this >>> 5 easy ways to increase your borrowing power
STEP FIVE: Get your documents together early
Nothing stalls a finance approval faster than a borrower scrambling to find a document on a Friday afternoon while the dealership is waiting to hand over the keys.
To apply for car finance, you’ll need to provide documentation such as:
- Photo ID (to prove you’re 18 or older)
- Proof of income
- Proof of residence
- Employment details
- Financial and living expenses
Gathering documents to verify your identity, income, residential status and the specific car you plan to purchase helps ensure a smooth application process.
These documents might look slightly different depending on your employment status:
PAYG/salaried employees | Self-employed/ABN holders |
100 points of ID (license/passport) | Active ABN (ideally 12-24 months) |
2 most recent consecutive payslips | Latest BAS or business statements |
3 months of solid bank statements | Clear business credit history |
If you think gathering documents sounds like a simple step… Well, you’d be right.
You’d also be surprised how many car buyers don’t come prepared, leading to lengthy delays or rejections – or approval with stricter loan terms and higher interest rates!
|
STEP SIX: Secure pre-approval
Car buyers commonly submit three or four applications to different banks and online comparison sites to see who gives the best deal.
This makes sense in theory, since you want to shop around and find the best deal.
Applying for multiple loans in a short space of time can actually be an expensive mistake.
When you apply for a loan, it’s usually recorded on your credit report (whether you’re approved or not). If a lender sees four enquiries in a single week, they might assume you’re in a financial emergency and reject your application.
The solution? Pre-approval.
Fido Finance pre-approval advantage
Pre-approval means a lender has assessed your financial snapshot and agreed in principle to lend you a specific sum of money. Pre-approval is usually valid for 30 to 90 days.
At Fido Finance, our brokers take the time to understand your finances, credit history, and the car you’re looking to buy. From there we find the right lender and replace multiple applications with one targeted request.
Securing pre-approval without spamming applications helps turn you into a cash buyer. You can go car shopping with a firm budget and leverage to negotiate the drive-away price with confidence.
Our award-winning team can help you secure pre-approval before you go car shopping so you can pull the trigger, whether you’re in a dealership or messaging a friend of a friend on Facebook.
Let’s get your finance sorted
Now that you have the roadmap, you’re officially ahead of 90% of buyers who are ready to start the car finance process.
You know how to:
- Check your credit score
- Manage existing debt
- Leverage job stability
- Audit your potential car
- Get your documents ready (and which ones)
But you don’t have to spend weekends and days off executing this blueprint alone.
At Fido Finance, we leverage our expertise and relationships with 30+ leading banks and specialised non-bank lenders to find a customised structure that suits your cash flow.
With $550 million in loans approved and same-day approvals available for qualified applicants*, it’s the fast and simple way to get behind the wheel with a loan that works for you.
Ready to find out what you could qualify for? Claim your obligation-free pre-qualification assessment (no impact on your credit score)**
* Same-day approval is subject to lender terms and conditions.
**A formal credit application is only lodged with your explicit consent once we find the right match.
