Over 90% of vehicles in Australia are currently under finance. Given that most people utilise finance these days for various purchases including buying a vehicle, it’s surprisingly hard to find information about what lenders actually look at on a finance application.
So we’ve created the list below so you can be informed and have the best chance possible of getting your finance application approved by following the guidelines below.
Minimum requirements
As a general rule, you will need to be over 18 years old, provide a minimum of 100 points of identification and be in active employment or in some cases, lenders may also accept certain forms of Centrelink as a primary source of income.
Capacity
Capacity is your ability to afford your current expenses and bills while also supporting the new finance you’re looking to take out.
While some lenders may have different criteria, risk appetites and may be able to apply leniency with some parts of an application, capacity is definitely not one of them.
The Australian Securities & Investments Commission (ASIC) imposes very strict regulations on financiers and brokers to make sure you have the ability to repay any loans you look to take out without suffering hardship and that a loan contract meets your requirements and objectives.
If your application is assessed and the lender determines that you don’t have capacity to support the loan, there is not much that can be done in this situation to change the outcome.
If you have a spouse or de-facto partner that you live with and your application isn’t already submitted in joint names, it may be possible to either add your partner to the application to increase capacity between both applicants or alternatively split expenses such as rent and bills to free up your capacity.
Asset type
Lenders also consider the type of asset you’re financing, including brand, model, purchase price, whether its new or used, private sale or dealership sale. These details can influence the maximum amount that a lender will be willing to lend for the asset as well as the finance term they’re willing to offer.
This is especially true if you’re looking at taking out a secured loan where the asset/vehicle will be used as collateral for the finance.
Employment history
If you are a permanent full-time or part-time employee, you will need to provide your 2 most recent payslips.
If you are currently casually employed, you will also need to provide your 3 most recent payslips and in some cases you may be asked for recent bank statements to prove employment income.
If you are self-employed, you will generally need to provide your most recent tax return.
If you recent any form of Centrelink income, you will need to provide your Income Statement.
The more stable employment history you have, the more favourable your application will look to potential lenders. Unstable employment history can be a red flag for lenders. They tend to prefer permanent employment and continuity of employment (consistent employment within the same field).
Proof of income
Generally payslips will be used to prove employment and as proof of income. In some cases, lenders may also request bank statements.
Assets and liabilities
Lenders will also look at your overall profile and what you own versus what you owe. So they’ll want to know what assets you have and what liabilities, loans, credit cards and bills you currently pay as well. This gives them an overall snapshot of your profile and how much you currently owe.
Living arrangements
As with employment history, lenders also love to see stable living arrangements. This gives them peace of mind that you’re not likely to bug out and stop making your loan repayments. If you can prove stable rental history or that you own (or have a mortgage over a property) it will help your finance application greatly.
Credit profile and history of repayments
Lenders love to see good credit history. This shows them that you pay your bills. If you have previous unpaid defaults or have been bankrupt it can be very difficult to get any kind of finance approval since this says to lenders that you don’t take responsibility for your bills and your finance. If you have unpaid defaults, the best way to help your finance application is to try to pay them out. This shows lenders that you are taking responsibility for your debts and can greatly increase your chances of being approved for finance.
Have questions?
If you have questions or want to talk to someone about your specific circ*mstances, give us a call today on 1800 538 287. Our friendly and knowledgeable Finance Consultants are always available to have a chat with you about your finance needs. Best of all, it’s always obligation-free, so if you don’t want to proceed with finance, you don’t have to.
FAQs
From the moment you fill out a loan application, a lender is invested in learning everything they can about you. That's because things like your credit score and debt-to-income (DTI) ratio give them a sense of how well you have managed debt in the past and how much debt you currently carry in relation to your income.
What are the 4 Cs that lenders are looking at? ›
So, what do lenders look at when deciding to approve or deny an application? Lenders consider four criteria, also known as the 4 C's: Capacity, Capital, Credit, and Collateral.
What are the 3 Cs of credit that lenders look for in a loan applicant? ›
Students classify those characteristics based on the three C's of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.
What are 5 factors that lenders evaluate when reviewing credit applications? ›
Understanding the 5 Cs of Credit
They also consider information about the loan itself. Each lender has its own method for analyzing a borrower's creditworthiness. Most lenders use the five Cs—character, capacity, capital, collateral, and conditions—when analyzing individual or business credit applications.
What three factors do lenders consider when reviewing an application for a loan? ›
Five keys of loan applications
- The most fundamental characteristics most prospective lenders will concentrate on include:
- Credit history.
- Cash flow history and projections for the business.
- Collateral available to secure the loan.
- Character.
The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.
What habit lowers your credit score? ›
Making a Late Payment
Every late payment shows up on your credit score and having a history of late payments combined with closed accounts will negatively impact your credit for quite some time. All you have to do to break this habit is make your payments on time.
What are the 5 Cs of lending application? ›
The five C's, or characteristics, of credit — character, capacity, capital, conditions and collateral — are a framework used by many lenders to evaluate potential small-business borrowers.
What is the most important C of credit? ›
When you apply for a business loan, consider the 5 Cs that lenders look for: Capacity, Capital, Collateral, Conditions and Character. The most important is capacity, which is your ability to repay the loan.
What is considered a good credit score? ›
Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
80% – 89% chance of approval
If you fall into this bracket, there is still a good chance you'll be approved for the finance product you're after. However, there is a slight risk you'll be declined if you proceed. The lender will usually need to do a few extra checks to make their decision.
Which factor is most important to lenders? ›
These are the standards often used by lenders to determine whether a potential borrower is a strong candidate for a loan. The 5 C's are: Character, Capital, Capacity, Collateral and Conditions. Capacity, one of the most important of all five factors, is how the borrower will pay back a loan.
Which type of loan is typically easier to get? ›
Some of the easiest loans to get approved for if you have bad credit include payday loans, no-credit-check loans, and pawnshop loans. Personal loans with essentially no approval requirements typically charge the highest interest rates and loan fees.
What are the three Cs lenders look for? ›
Character, capital (or collateral), and capacity make up the three C's of credit. Credit history, sufficient finances for repayment, and collateral are all factors in establishing credit. A person's character is based on their ability to pay their bills on time, which includes their past payments.
What are the 7 Cs of credit? ›
Condition – The purpose and details of your loan. Capacity – How you plan of to repay the loan. Collateral – A form of security that guarantees repayment. Character – A look at your credit history, demonstrated responsibility and the integrity of your actions.
What are the 4 Cs of lending? ›
Character, capital, capacity, and collateral – purpose isn't tied entirely to any one of the four Cs of credit worthiness. If your business is lacking in one of the Cs, it doesn't mean it has a weak purpose, and vice versa.
What are the 4 Cs in loan? ›
Concept 86: Four Cs (Capacity, Collateral, Covenants, and Character) of Traditional Credit Analysis. The components of traditional credit analysis are known as the 4 Cs: Capacity: The ability of the borrower to make interest and principal payments on time.
What are the four 4 Cs of the credit analysis process? ›
The “4 Cs” of credit—capacity, collateral, covenants, and character—provide a useful framework for evaluating credit risk.
What are the 4 pillars of lending? ›
Credit score, income, employment and down payment are the four pillars of the loan approval process. Your approval, interest rate and program will largely be based on a combination of these four items. That being said, these four are not the only factors that constitute loan approval.
What are the 4 Cs in credit investigation? ›
The 4 Cs of Credit helps in making the evaluation of credit risk systematic. They provide a framework within which the information could be gathered, segregated and analyzed. It binds the information collected into 4 broad categories namely Character; Capacity; Capital and Conditions.
