Can You Roll a Personal Loan Into a Car Loan

If you've taken out a personal loan to pay for last year's vacation and you'd be paying for it until next year, you can still qualify for auto financing. However, you need to have a good credit score to get approved and acquire a good interest rate. Your existing personal loan should also not strain your capacity to repay the new debt.

What You Should Prepare

Credit Score

The required credit score to get a car loan depends on the lender's judgement and willingness to accept the risk, size of the loan and the type of vehicle you're planning to purchase. Generally, however, a high credit score wins the lender's nod. For a credit scoring model with a range of 300 to 850, this means 700 and above. A score of 670 to 699 is considered good and may still help you secure a car loan.

Collateral

The car you're buying is typically used as collateral for your auto loan. Pledging it as collateral for your secured loan doesn't transfer your ownership of the vehicle to the lender. However, it gives them a legal right to seize and sell your car if you can't complete the repayment within the agreed term.

The lender usually appraised the vehicle to determine its monetary value. The year, make and model of your car, as well as its condition, mileage and even colour and additional features, will all be taken into consideration. The appraisal value of your vehicle is a key factor in determining the amount you can borrow.

Proof of Identity and Residence

Banks and lending companies in Australia provide car financing only to legal aged Australian citizens and permanent residents of the country, but some lenders also offer car loans to temporary residents. This is provided that the non-residents have a working or student visa that is valid for longer than the duration of the loan applied for. The visa holder must also not be working multiple jobs or extended hours, which are breaches of their visa conditions.

Small lending companies that operate within a specific area may also limit their clients only to those who reside in their area of operation.

The most commonly required identification documents include:

Passport
Citizenship certificate
Birth certificate
Drivers licence
Medicare card
State and territory issued identity photo cards
Working Visa (for non-residents)
Student Visa (for non-residents)
Foreign driving licence and foreign national identity (for non-residents)

Proof of Financial Capacity for Repayment

To ensure that you are capable of repaying your debt within the agreed term, lenders need to know your income. These can be proven by your:

Tax Returns
Recent Pay Stubs
Latest Bank Statements

If you do not receive a monthly salary from regular employment but have a good source of income, such as a business, pension or irregular work like freelancing and consultancy, you need to provide your latest tax returns and bank statements, along with supporting documents like:

Centrelink Payments
Financial Statements
Notice of Assessment
Stock Dividends
Real Estate Statements or Executed Lease Agreements (if you have rental properties)

Down Payment

The typical down payment for a car loan is 20% of the car's total purchasing price. If you have the means to provide more than this amount percentage, do so. It will help get a lower interest rate for your car loan. You'll have a higher chance of being offered a loan with a low APR because the lender won't see you as a high-risk borrower. Even if you don't get a lower APR, you will still end up paying a lower amount of interest. This is because your down payment reduces your total loan amount and the length of time it takes to pay it off.

The Importance of a Car Loan Pre-Approval

After securing all the required documents, you can start applying for a car loan. It's best, however, to first get pre-approved by several lenders before finally applying to one.

Advantages

A car loan pre-approval gives you an estimate of how much you can afford to borrow. By having a better idea of your price range, you can work around an ideal budget, know which cars you can afford to buy and negotiate a good deal with car dealers.

While a pre-approval doesn't guarantee that your car loan will be approved, it's a step closer towards that goal⁠—Your lender has granted you conditional approval for a car loan up to a certain amount. This means that they agreed to finance your vehicle although they haven't proceeded to fully approving your application.

Most lending companies provide online pre-approval application forms to expedite the process. Generally, it only takes around 24 hours or less to get a decision.

Downside

After filling out the pre-approval form, lenders proceed to evaluate your financial standing to ascertain your capacity to repay the loan and how much you can afford to borrow. They may call you to verify a little information. They may also pull out your credit files from the credit reporting bureaus. This gets recorded on your credit file as a "hard inquiry" and negatively affects your credit score a bit as it gets interpreted as applying for too many loans at the same time. Inquiries made within two weeks, however, is counted as one so it's smart to do your pre-approval applications in this timeframe.

Validity

A pre-approval is valid for a limited time, typically one to three months. Thus, it's ideal to start your car shopping as soon as you have the pre-approval.

Completing the Application Process

Car Shopping

After getting pre-approved for a car loan, you can start shopping around for your ideal car. Armed with a pre-approval letter, you won't be having a hard time looking for a car that fits within your budget or negotiating with the dealers because you know your borrowing power. In fact, you can haggle for a better deal.

If you find the visit to the dealership stressful or time-consuming, you can also seek a vehicle source provider to do the car shopping and price negotiation for you. At Positive Lending Solutions, we offer a free vehicle sourcing service once you are pre-approved for a car loan.

Submission

Once you find the car that suits your needs, you need to resubmit your application to the lender of your choice. This lender is not necessarily the one that granted your pre-approval. The information you provide includes the accurate details of the vehicle that you want to purchase. You may also be required to submit additional documents to complete the application.

Verification

After submitting all the requirements, the lender proceeds to verify the information you provide and conduct their final checks. Those that haven't check their credit profile during the pre-approval process conduct the credit check during this stage. If all is good, including the price of the vehicle you want to buy, you will be granted unconditional approval. This process usually takes around two business days in most banks and lending institutions.

Loan Funding

Once granted unconditional approval from your lender, you can receive your funds within one to three business days. You may need to complete other documents before receiving the funds, including a signed contract that specifies the amount you borrow and the repayment terms.

Be wary of lenders who require you to pay for add-ons before finally giving you the money. If your car is secured against your loan, you will be required to pay for comprehensive insurance. However, securing loan protection insurance, gap cover and extended warranty is not compulsory.

The Consequences of Getting a Car Loan if You Have a Personal Loan

High Credit Utilisation

While you can get a car loan despite already paying for a personal loan, this is not usually easy-peasy. The more loans you get, the higher your credit utilisation becomes. A high credit utilization negatively affects your credit score because it suggests that you're using a lot of income on debt payments. This puts you at a higher risk of defaulting on your payments. As a result, your car financing might come with a higher interest charge and less friendly loan terms.

High Risk of Repossession

Having two separate loan obligations can weigh heavily on your wallet, especially if you experience financial difficulties a year or two after securing your car loan. If your loans are secured and you fail to complete the repayments for your car loan and personal loan within their agreed terms, your car and other pledged assets will be repossessed and sold by your lender to recover their money. Aside from losing your properties, the loan default and repossession records will greatly damage your credit profile and cause your credit score to plummet. When this happens, getting approved for future financing will become difficult.

Thus, while it is is totally conceivable to get a car loan even if you already have a personal loan, it's wise to secure and complete financing one at a time. It will give you more wiggle room in your finances, keep you away from loan defaults and repossession and build you a higher credit score that translates into a stronger borrowing power.

Positive Lending Solutions helps people across Australia get car loans and personal financing at reasonable interest rates and terms. Call us on 1300 722 210 or get a quick quote here to get an idea of how much your monthly repayments will be.

Can You Roll a Personal Loan Into a Car Loan

Source: https://www.positivelendingsolutions.com.au/resources/information-centre/how-to-get-a-car-loan-if-you-already-have-a-personal-loan/