Cootamundra Herald

Tips to get approved for your first car loan

Tips to get approved for your first car loan
Tips to get approved for your first car loan

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Getting approved for your first car loan isn't always an easy process. With interest rates being as high as they are, it's currently more challenging than usual to get approval.

You'll need to be able to show that you're financially stable enough to make repayments, but there are ways in which you can make it more likely to get the funds you need to buy your first car.

1. Explore specialist lenders with pre-approval

Rather than going through a conventional route and applying for a loan at a bank, you may be better off going to a specialist lender. They often have different parameters for their credit approval, and your car will act as the collateral in your loan.

Lenders like Rapid Loans enable you to apply for a car loan online today, taking the hassle out of the process. You can either borrow money and have it in your account quickly, or you can get a pre-approved loan instead.

This will give you a specific range of how much you can borrow upfront, as well as how much your interest and repayments will cost. This is a great option if you haven't found the perfect car yet. You'll have the funds ready to go when you do.

2. Check your current credit score

Knowing your credit score is an important step in working towards your goal of getting car loan approval. There are plenty of providers in Australia who can complete a credit score check in just a few minutes for free.

Different banks classify scores differently, so once you know where yours sits, you can compare them to find which is most suitable for you. You should also be able to see the details of your credit score, meaning if there are any errors or factors that are negatively affecting your score, you can work to remediate them to improve it.

3. Improve your credit score

If there are issues with your credit score and it's looking low, there's a multitude of ways you can help improve it. The main methods revolve around ensuring that any recurring payments you have are consistently paid on time.

That includes things like rent, loans and credit card repayments. If you're struggling to remember to pay on time, setting up automatic payments is a good way to navigate this.

Another factor that can affect your credit score in the short term is applying for loans. If you're frequently applying for and being rejected for loans, it'll reduce your credit score slightly. Rather than trying to apply to multiple lenders, doing your research first and finding the right one for your circumstances will give you better results in the long term.

4. Collect documentation to show consistent income

When you apply for a loan, you'll be required to show that you have enough money to make repayments and cover the interest each month. Collecting your pay slips for a period of three to six months or providing your most recent tax return can help show that you've got consistent employment.

It gives the loan provider enough information to decide if you're earning the minimum amount required to pay any other bills you have, along with your loan repayments. You may also want to include bank statements that show savings accounts as proof of your ability to make a down payment on your car.

5. Reduce your existing debt

Lenders will calculate a few things when you have other loans and compare them to your income. This is referred to as a debt-to-income ratio, meaning if the amount you owe outweighs the amount you earn, you're unlikely to be approved for a car loan.

Again, if credit score is an issue, one of the key ways to help improve your chances of getting approved for your first car loan is to reduce the existing debt you already have. Whether it's student loans, credit card debt or a personal loan, paying off as much as possible will reduce the impact on your income each month, as well as bolster your credit score.

6. Save more to set aside as a larger deposit

While the cost of living is high, it's still worth doing your best to try and set any extra money aside that you can. Your borrowing power increases when you have a higher deposit. Aiming to save at least 20 per cent of the total value of your car is a good starting point.

When the total value of what you're borrowing is lower, even with a moderate score, you'll be more likely to get approval. This is especially helpful if you're looking for a higher-value loan overall and will also make it easier for you in the long term when the interest you're paying isn't on such a high borrowing value.