Mozo guides

Car loan applications

toy car with car keys on blue background, applying for car loan

How exciting! You’re about to apply for a car loan, and get yourself a new set of wheels.

But how do car loan applications work? 

Well, the good news is, whether you are opting for a new or used car loan option, the application process is likely the same. So if this is your first time or you just need to brush up on the process, here's a full breakdown of what's in store.  

How much should I spend?

First thing’s first - work out your budget.

Say you are looking at a car loan with a rate of 7.00% over a 5 year term. 

While that $70,000 car with a reverse camera, bluetooth capabilities, leather seats, top of the line safety features, suspension and run flat tyres looks incredible - can you budget $1,386 a month in repayments?

On the other hand, a loan amount of $21,000, and $416 per month in repayments, you can move the same amount of people around with a few less bells and whistles. It may not be the latest model, but you will be saving a fortune and more likely actually be able to afford the repayments.

Need a hand figuring out what your repayments could be? Check our our car loan repayments calculator.  

How do I work out my car budget?

Before you walk into a dealer with an absolute figure in your head, you need to be a little bit more realistic when it comes to your spending habits.

A way to do this is to print out last month’s bank statements including all credit cards and line them up. 

Essentially, what you need to do is make a true observation on how you spend before making a big purchase like buying a car. This is serious stuff!

Tally up on a separate piece of paper what you spend on the following: 

  • Utility bills 
  • Credit card repayments 
  • Rent or home loan payments 
  • Beauty and or hair treatments 
  • Home/personal/income/car insurance 
  • Mobile phone and internet connection 
  • Petrol
  • Groceries 
  • Clothes 
  • Going out 
  • Travel

There's a lot to factor in. When it comes to things like utility bills, also think of the bills you pay quarterly to work out a monthly average.

What’s left over? If you’re scrambling to find financial room to breath then it may be time to reconsider your spending habits. This could be eating out less or opting for cheaper options at the grocery store. 

Compare Car loans 

Now that you’ve worked out how much you can spend on car repayments, it’s time to compare loans.

As you probably already know this is not the easiest task with all the options out there. That's why our team of experts have built a Mozo car loan comparison calculator to help you along.

Just to give you an idea of what to expect to pay on a $30,000 car, check out some of the scenarios below, while using your new car as security on the loan:

Secured loan: Fixed rate
Car loan value: $30,000
Term: 3 years

Lender Rate %^^ Monthly repayments - 3 year term
Our Money Market Car Loan 6.25% p.a. (6.87% p.a. comparison rate*) $916
NRMA Used Car Loan 7.99% p.a. (8.60% p.a. comparison rate*)  $940 Clean Green Car Loan 4.99% p.a. (5.54% p.a. comparison rate*)  $899

Secured loan: Fixed rate
Car loan value: $30,000
Term: 5 years

Lender Rate %^^ Monthly repayments - 5 year term
Our Money Market Car Loan 6.25% p.a. (6.87% p.a. comparison rate*) $583
NRMA Used Car Loan 7.99% p.a. (8.60% p.a. comparison rate*)
$608 Clean Green Car Loan 4.99% p.a. (5.54% p.a. comparison rate*) $566

^^Rates shown correct as of 14 September 2022. 

As you can see, by stretching your loan term by an extra two years, your repayments can end up being a lot less. 

It makes the amount you pay more manageable and allows for other spending you need to make in the meantime.

If you need to ease it up a bit, even though you pay a little bit more in interest, with a fixed rate you know exactly how much you’ll be paying each month with no hidden increases (like with a variable rate).

How to choose a car loan

So by this stage, you’ve worked out your budget, used Mozo’s car loan comparison tool to weigh up the different products and lenders. 

Guess what? Now you're at the point of having to bite the bullet and choose one. One product. One lender. You can do this!

We’ve discussed everything from budget to lender to type of loan, and the smaller features. But still equally as important is if you get charged an application fee. 

If you find a loan that has a fee, ask yourself:

  • How does it compare to competitors fees while comparing their interest rate?
  • Are you better off paying a higher one-off fee for a longer term lower interest rate?
  • Can I make extra repayments or pay off my car loan without being penalised?

What documents do I need to have ready? 

Having all the right documents before walking into an appointment with a lender or jumping online means that you can complete your application a lot faster. You never know, you may even be approved within that day.

So with that in mind, to ensure a smoother car loan application process, make sure you have: 

  • Bank statements (up to 3 months) 
  • Tax returns (up to 2 years) 
  • Invoices that you’ve sent out if you’re a contractor (up to 3 months) 
  • Statement from your accountant or employer stating your income 
  • Drivers license 
  • Passport 
  • Medicare card 
  • Amount of credit available to you (re: credit card credit, whether used or not) 
  • Typical monthly expenses including rent and mortgage repayments.

As each lender has different requirements, always check what your specific lender needs. They may want less or more from you than what we've listed above. 

5 things you need to sort out to get your loan approved

If you’re generally on time with paying your bills, your credit rating should be ship shape and you’ll be a pretty good candidate for making a successful car loan application.

But what can you do to help your application get across the line? Here’s a couple of things we thought we’d let you in on: 

1. Prove your residency: this is no secret. You absolutely must be an Australian resident. 

2. Get evidence of your income: you need to be realistic about how much you earn compared to how much you want to borrow. 

3. Resolve bad credit history: you’ve got about 6 months to rectify it. Make sure you pay all your bills on time, even 3-5 business days in advance before the due date so that you never miss a payment or get charged a late fee. Set up a direct deposit so that you never forget. 

4. Close off unused credit cards: well that’s good news! But if you’re not using them, you’re better off closing them as lenders see that potential credit used and thus a debt risk. The reason is that if you start using it, your potential lender may decide that if you’re overwhelmed in debt you’re at risk of not being able to repay the debt you owe them.

5. Lock in security for your loan: not only will your interest rate be lower, but so will your repayments. Placing collateral as security on your loan will also give the lender confidence that you’re serious about paying off your car loan. Mozo advises using the car you’re purchasing on your loan rather than your house. It’ll be a pretty awful scenario to be forced to sell your house just to repay your car loan, right?

Ready to compare car loan options? Head to our car loan hub for some hot offers right now. 

Sara Borman
Sara Borman
Money writer

Using her Bachelor of Communications in Writing, Sara has spent her professional career creating content and crafting copy. Her writing has been published in academic journals and literary anthologies in the US and Australia. She’s determined to make the world of finance accessible and loves finding a way to make money interesting to the everyday person.

* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

^See information about the Mozo Experts Choice Personal Loan Awards

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