How much can I borrow and how is my interest rate worked out?

Posted on Posted in Car loan, Finance, Interest rates

The amount you are eligible to borrow will depend on a number of factors. For example, a person who is employed on a casual basis, earning minimum wage, is not likely to be eligible to borrow $100,000 for a brand-new sports car.


Factors impacting your borrowing power

Those factors, which will impact on your ability to borrow, include the following things:

  • your age;
  • marital status;
  • whether you have children and how many (kids are expensive!);
  • how much you earn;
  • how much your partner earns;
  • credit history (whether you have ever defaulted on a loan before);
  • assets you own;
  • existing liabilities that tie up your cash (like rent or a mortgage);
  • where you work and how long you’ve worked there.
The interest rate you pay

The interest rate you pay depends on a number of similar factors. If a lender considers that there is risk in lending you money, they will build that risk into the interest rate.

Interest rates are also determined by the way the market is trading and what the Reserve Bank of Australia has set the cash rate at. This has the potential to get a bit technical, but basically if the Reserve Bank increases the cash rate by a few basis points, this could have an impact on the price of money and therefore the interest rate you will pay on any loan – not just car loans.

Interest rates for vehicles are always likely to be higher than an interest rate for a house, for example. This is because the value of a house and land will (usually) appreciate (i.e. rise) in value and the bank has a security over that land in the form of a mortgage.

Loans for vehicles are not secured in the same way. Even if they were, the value of most cars depreciates over time (unless you buy a very rare and expensive car that will one day become a classic).

Our finance team can help you navigate this seemingly complex process once you have answered just a few questions. Head over to our 30-second quote form and to find out the best interest rate you qualify for.