How much can I borrow for a car loan?


If you're starting the car loan application process, you’ll be interested in how much you’re able to borrow with your current salary and the criteria you’ll need to fit in order to take out a lower-interest loan. 

Ready to buy your new car? In this article, we’ll cover everything you need to know about taking out a car loan, including the types of loans available to you and what interest rates you’ll be expected to pay.

Let’s get to the following commonly asked questions: 

  • How much can I borrow with a car loan?
  • How much can I borrow for a car loan based on income?
  • How much can I borrow on an 80k salary?
  • What is a good interest rate for a car loan in Australia?
  • What is a secured car loan, and what is my borrowing power?
  • Compare car loans: personal vs secured

Q1. How much can I borrow with a car loan?

How much you can afford to borrow with a car loan depends on financial factors such as your credit history and financial situation such as your active loans and finance. Your income and living expenses will also be analysed to understand your borrowing power and determine whether you’ll be able to keep up with the monthly loan amounts.

Calculating your borrowing power will allow you to understand the type of car loan you can afford. If you don’t do this, the lender will look at your application and judge whether you can afford the car lease.

Q2. How much can I borrow for a car loan based on income?

When looking at car finance, it’s advisable to spend no more than 10 percent of your monthly income (after tax) for car loan affordability and to make sure you can afford to pay the monthly repayment.

For instance, if your monthly income is $2,500 you shouldn’t pay more than $250 on the monthly car loan repayment.

It’s essential that you understand your borrowing capacity and pay attention to the loan interest rate. If you can’t make your car repayments, it will have a detrimental effect on your credit score. If you have bad credit, you’ll struggle to take out finance such as a credit card or a mortgage in the future. 

Q3. How much can I borrow on an 80k salary?

On an 80k salary, you’ll earn around $5,294 per month after tax. As advised, your loan borrowing power would be $529 monthly, including fees and charges. If this seems too high for your budget, we recommend using a car loan repayments calculator to understand how much your dream car will cost. 

Q4. What is a good interest rate for a car loan in Australia?

The average interest rate on a car loan in Australia is between 5 and 10 percent, but it is possible to get a better interest rate depending on the life of the loan and your existing credit score. If you’re buying a new car your interest rates will likely be much lower compared to a used car. 

A good interest rate is typically under 3 percent, however, this isn’t usual when taking out a personal loan.

Note: The interest rate you’re likely to face is something to consider when choosing your new car. If you're unsure how the interest rate will affect your monthly payments, consider using a car loan calculator.

Q5. What is a secured car loan, and what is my borrowing power?

There are two types of car loans available to borrowers: personal loan borrowing, or a secured loan. Unlike a personal loan (defined as an unsecured loan) a secured loan uses collateral, such as your home, as security in case you can’t make your repayments. 

Important: With a secured loan, you’ll pay much lower interest rates and will be able to purchase a more expensive car. To determine your borrowing power for car buying, use a borrowing power calculator. 

Q6. Compare car loans: personal vs secured

If you’re unsure which type of loan is right for you, it’s essential to assess your personal finances and assets. For example, if you own your own home and want a low rate, a secured loan would be a better option for you. However, there are risks involved with this type of loan. For example, if you can’t make the repayments you could lose your home. 

If you have a good credit score and would prefer a less risky investment, a personal loan is probably a better option. You will pay more interest, but you won’t have the risk of losing your home. 

Summing up

To secure a car loan you’ll need to meet the lending criteria and make sure you can make the personal loan repayment every month. 

When determining your borrowing power, It’s essential to assess your own personal finances and avoid paying more than 10 percent of your monthly salary on your loan repayment - if not, you could face repossession of your car, or if you’ve taken out a secured loan, your home. 

If you found this article helpful, check out our blog for more financial advice. If you’re interested in more information regarding car loans, read our article ‘how to refinance your car loan’.

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

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