Explore car loans for pensioners

If you want to buy a new car, but don’t have the cash to buy it outright, you might consider getting a car loan. For many, getting a car loan depends on whether your employment provides enough income for you to make repayments.  

However, if you’re retired, or receive government benefits like the pension, you could still be eligible. As long as you meet lenders’ criteria and prove you can cover repayments, a pensioner car loan could be for you.

Criteria for pensioner car loans may vary between lenders. It’s important you review each lender’s terms and conditions carefully before signing anything. 

Generally, even if you are not working, your pension payments will be counted as income. Lenders assess your income to see if you can meet repayments under various interest rate scenarios.  

Lender criteria can include: 

• Age restrictions: You must be over 18-years old to apply for a car loan - this is the same for pensioner car loans.  
• Income restrictions: Your pension must be enough to cover your repayments and expenses. 'Supplementary income' - either from employment or superannuation - may improve your chances of approval. 
• Residency restrictions: You must be an Australian resident to apply for a pensioner car loan. If you're in Australia temporarily, you may need to apply for a temporary resident car loan. 
• Pension type restrictions: You may be eligible if you receive the aged pension, disability support pension, or Centrelink payments such as parenting or carer payments. Some allowances, like JobSeeker (formerly Newstart), Youth Allowance and Austudy, may not qualify, and you could need to prove supplementary income.

Can I get a car loan on Centrelink payments? 

If Centrelink is your main source of income, you may get a car loan if you meet the lender’s criteria. The big four banks may be less likely to provide you with a pensioner car loan if you are not in employment. However, smaller lenders, online credit providers and credit unions could be more helpful.  

To see if you qualify, check the minimum income eligibility on the loan you’re considering. If the loan amount is low, you may qualify for a short-term advance, but this is assessed on a case by case basis.

As the name suggests, pensioner car loans are loans available to people receiving a pension. Pensions are government payments provided to residents if they are unable to gain employment.  

Types of pensions include age, disability and parenting pensions. They also cover pensions for carers of the elderly or disabled. If you're on a pension in Australia, you may be wondering what types of car loans are available to you.

Pensioner car loan features to consider:

Unsecured pensioner car loans 

An unsecured car loan is not secured by the value of an asset. These loans are more risky for lenders, and so may carry higher interest rates. Unsecured loans are mostly available to borrowers who prove they are credible. This is because if you default on an unsecured pensioner car loan, the lender cannot repossess the car. 

Secured pensioner car loans 

Secured car loans are secured by an asset - usually the car - to reduce financial risk to the lender. If you default on your repayments, the lender can repossess the vehicle you have used as security. These are more common with car loans as the lender can sell the vehicle to recoup their losses if you default, reducing their risk. 

Fixed rate pensioner car loans 

Pensioner car loans with fixed rates have the same interest rate applied to the loan for the entire loan term. You agree to pay a set amount of interest each month, so your repayments never increase, which gives you certainty. However, it could also mean missing out on savings if lenders reduce their interest rates. 

Variable rate pensioner car loans 

The interest rate on variable rate car loans can change over the loan's term, at the lender’s discretion. This type of car loan can save you money if there’s a rate cut, as your repayments would fall. However, if your lender raises interest rates, your repayments could increase and you could end up paying more over the life of the loan than if you had a fixed loan. 

Choosing between fixed and variable rate car loans

Deciding whether a fixed or variable interest rate is the right choice for you will ultimately depend on your financial situation. If you're on a pension, an unexpected increase in your repayment amounts could potentially cause you financial difficulties. 

When you are restricted to a specific amount per month in income, and do not have the capacity to make any supplementary income, you may find a fixed rate loan to be more manageable. However, if you don’t want to miss out on potential savings, you could choose a variable loan and budget to cover an increase of up to 3 percentage points on the loan’s interest rate.  

How much can you borrow with a pensioner car loan

The amount you will be able to borrow will vary from lender to lender, and will also depend on your individual circumstances. Borrowing a smaller amount means you have less to repay. 

You might also like to consider saving for a deposit in order to show the lender you are able to save money when receiving a pension, and potentially improve your credibility with the lender.

Here are some of the factors that may contribute to determining how much you can borrow:

Employment status

While you do not need to be employed to be eligible for a pensioner car loan, your options will be more limited than those open to someone who is employed. You may be required to agree to a shorter loan term, higher repayments or a higher interest rate. If you have supplementary income, like part time work or superannuation payments, the lender may increase your loan amount.  

Interest rates

As you compare pensioner car loans, you may receive different interest rates from lenders as a result of your financial situation. Lenders charge less competitive rates on loans that are seen as higher risk. If you are a pensioner and you own assets, these can be used as security on a car loan to reduce the interest rate you pay as they lower the risk to the lender. And remember, most lenders will also charge fees on top of interest, so consider comparing different comparison rates for a better idea of the overall cost of the loan.

Budget capabilities

Before you decide on how much you want to borrow, be sensible about your budget. Look at your pension payments against your expenses and be honest with yourself about how much you can afford to repay. Assess your repayment capabilities prior to making any applications to check that repaying a loan is feasible. RateCity's car loan repayment calculator may come in handy here.

If you qualify for a pensioner car loan, the next step is to conduct a thorough comparison of car loans from various lenders. 

Before you apply, make sure you meet the lender requirements for the loan of your choice. This is because if you are rejected from a car loan application, it may negatively impact your credit score. 

You might also like to consider calling the lender or a financial broker before you make a decision.

What do lenders look for when approving a pensioner car loan? 

As with all loans, lenders assess your financial situation before they agree to finance the purchase of your car. 

When assessing your situation, lenders will look at: 

• What type of pension you receive  
• The ‘income’ you receive from pension payments
• Your credit history - this accounts for both good and bad credit events  
• The value of your assets (including your home, if you own one)
• Your residency status - whether you are a permanent Australian resident or citizen
• The proposed loan amount, and your ability to repay the principal loan amount
• The proposed loan term, and your ability to repay the interest on that loan

How do you improve your chances of being approved for a pensioner car loan?

• Save for a deposit: If you are able to save a deposit before applying for a car loan, you can reduce the total amount you need to borrow. This will reduce the overall interest you will repay over your loan term, and you will show your ability to save. 
• Use an asset as collateral: You are more likely to be accepted for a car loan if you have an asset you can use as security against the loan. This reduces the risk to the lender, as they can recoup their losses by selling the asset you use as collateral. This can also result in lower interest rates on your pensioner car loan.

When it comes to financial products, there is no one size fits all. Choosing the right pensioner car loan for you will depend upon a variety of different factors. Consider asking yourself the following questions to get a better understanding of what kind of loan may be right for you:  

• Do you prefer a fixed rate or variable rate loan?
• Do you want to buy a new or used car?
• Will you get an unsecured or secured car loan?
• How much will you borrow?
• Do you have supplementary income or do you only receive pension payments?

Creating a car loan budget  

Before you get a car loan, new or used, it’s crucial to consider all costs, in addition to the cost of the car itself. You will pay interest on the amount you borrow, along with various fees and charges, and the onus is on you to determine exactly how much that is. 

When you create your car loan budget, it's important to look at the following: 

• Cost of the car
• Car insurance fees
• Registration fees / stamp duty tax
• Repairs and maintenance
• Fuel and road tolls
• Membership of roadside assistance organisations
• Monthly car loan repayments
• The loan term
• Car loan fees and interest

How much will you really pay? 

As with any loan, it’s important to read the Product Disclosure Statement (PDS) or fact sheets for each pensioner car loan option you’re considering. These will outline all the fees and costs associated with your loan, some of which may not be prominently displayed. 

You should be able to find these on the lender’s website, but these documents can often be missed. If you struggle to find the PDS or fact sheets for any loan product, reach out to the lender and ask for them to send it to you before you begin the application process.

How to calculate your total repayments 

Making sure you are aware of every fee and charge that could be applied to your loan is crucial for making the most informed financial decision.   

To check how much a loan may cost you over the entire term, you can use our handy car loan calculator. 

RateCity analysis shows that a $30,000 car loan with an interest rate of 8% per cent and an annual fee of $100 results in a monthly repayment of $617. 

That equates to $6,998 in interest that you will pay on your loan over the five year term, or 23 per cent more than your original loan amount.