How Much Can I Borrow for a Car Loan?

How much you can borrow for a car loan depends on your income, expenses, existing debts, and credit history. As a rough guide, most lenders will approve a car loan where the repayment is no more than 10% to 15% of your gross monthly income. On a $60,000 salary, that typically means a car loan of $20,000 to $30,000 over five years. Below is a detailed breakdown by income level.

Estimated borrowing capacity by salary

These estimates assume a single person with no dependants, renting in a capital city, no existing debts, and a secured car loan at 7.5% over five years. Your actual capacity will vary based on your specific circumstances.

These ranges reflect the spread between conservative and flexible lenders. A bank might approve you at the lower end, while a specialist lender may approve at the higher end with a slightly higher rate.

How lenders calculate your borrowing capacity

Every lender follows a similar process, but the details vary. Understanding the formula helps you predict your result before you apply.

Step 1: Verify your income. Lenders look at your gross income and convert it to a net figure after tax. Full-time salary is the simplest. Part-time and casual income is accepted by most lenders after six to twelve months in the same role. Overtime, bonuses, and commission are typically discounted by 20% to 50%.

Step 2: Estimate your living expenses. Around 80% of Australian lenders use the Household Expenditure Measure (HEM), developed by the Melbourne Institute. HEM estimates your minimum living costs based on your household size, location, and income level. For a single person in a capital city, HEM is roughly $2,000 to $2,400 per month in 2026. The lender uses HEM or your declared expenses, whichever is higher.

Step 3: Deduct existing debts. Every existing debt obligation reduces your capacity. This includes personal loans, credit card limits (the full limit, not the balance), buy now pay later accounts, and any other loan repayments.

Step 4: Apply a stress test buffer. Lenders add 2% to 3% above the actual interest rate to check whether you could still afford repayments if rates increased. On a 7.5% car loan, the lender tests at 9.5% to 10.5%. This reduces your maximum borrowing amount by roughly 10% to 15% compared to the amount you could technically afford at the actual rate.

Step 5: Calculate the maximum repayment and loan amount. The lender takes your net income, subtracts expenses and existing debts, applies the stress test, and calculates the maximum loan amount that fits within the remaining surplus.

Five things that reduce your borrowing capacity

Each of these factors directly lowers the amount a lender will approve. Here is how much each one costs you.

1. Buy now, pay later accounts

Since June 2025, BNPL services like Afterpay and Zip are regulated under the National Consumer Credit Protection Act. Your BNPL activity, including missed payments, is now reported to credit bureaus. Lenders treat your total BNPL limit as a commitment, not just your current balance. A $2,000 Afterpay limit plus a $1,500 Zip limit means the lender assumes you could draw down $3,500 at any time. Impact: a $3,500 BNPL exposure can reduce your car loan capacity by $4,000 to $6,000.

2. Credit card limits

Lenders assess your credit card limit, not your balance. A $10,000 credit card with a $500 balance is treated the same as a $10,000 card that is maxed out. The lender assumes you could use the full limit at any time. Impact: a $10,000 credit card limit can reduce your car loan capacity by $10,000 to $15,000. Closing unused cards before applying is one of the fastest ways to increase your borrowing power.

3. Existing loan repayments

Any current loan, including personal loans, car loans, HECS/HELP debt, and motorcycle finance, reduces your surplus income. Each $200 per month in existing repayments reduces your car loan capacity by roughly $10,000 to $12,000 on a five-year term.

4. Number of dependants

Each dependant increases your assumed living expenses under HEM. A single person's HEM in a capital city is around $2,000 to $2,400 per month. Add one child and it rises to roughly $2,800 to $3,200. Each dependant can reduce your borrowing capacity by $5,000 to $10,000 depending on the lender.

5. Short employment history

Most lenders require at least three to six months in your current role for full-time employees, and six to twelve months for casual or part-time workers. If you have recently changed jobs, some lenders may decline or reduce your application regardless of your income level. If possible, apply after you have passed your probation period.

How to increase your car loan borrowing capacity

These steps can meaningfully increase the amount a lender will approve.

Close unused credit cards. Each card you close removes its full limit from your debt exposure. Closing a $5,000 credit card you are not using could add $5,000 to $7,500 to your car loan capacity. Allow two to four weeks for the closure to reflect on your credit file.

Pay off BNPL accounts. Close Afterpay, Zip, and similar accounts entirely before applying. Reducing the balance is not enough as the lender assesses the limit. Closing the account removes it from your exposure completely.

Reduce your loan term. A shorter loan term means higher monthly repayments but does not necessarily reduce how much you can borrow. Some lenders assess capacity based on your surplus income regardless of term. Ask your broker whether a different term changes your approval amount.

Add a co-borrower. A partner's income combined with yours can significantly increase your borrowing capacity. If one person earns $60,000 and the other earns $50,000, the combined income of $110,000 typically supports a car loan of $50,000 to $70,000.

Provide a deposit. While a deposit does not directly increase your borrowing capacity (it increases your equity), it does reduce the loan amount needed and can unlock lower rates on secured car loans. A lower rate means lower repayments, which gives the lender more headroom.

The 15% rule of thumb

A simple guideline: keep your car loan repayment under 15% of your take-home pay. This is not a lender rule but a budgeting safeguard. On a $60,000 salary (roughly $3,850 net per month), 15% is $578 per month. That supports a car loan of roughly $28,000 over five years at 7.5%. Going above 15% is possible but leaves less room for insurance, fuel, servicing, and unexpected costs.

If you are a first-time buyer, the 15% rule is especially important. Your first car comes with costs you may not have budgeted for, including insurance, registration, and maintenance.

This article is general information only and is not financial advice.