Can temporary residents get a car loan?

It can be difficult enough to navigate your way through the financial systems of a new country, but some temporary visa holders can access a car loan if they tick the right boxes.

Let's check what's entailed.

How do you get a car loan as a temporary resident in Australia?

Essentially, the application process is the same as it is for any borrower except lenders will apply stricter eligibility criteria for temporary residents.

This is because lenders see temporary residents as higher risk borrowers given their tenure in Australia is entirely dependent on their current visa. They will take particular note of how long the visa extends and the term of the car loan you are seeking.

Be prepared that some lenders may not extend loans to any temporary visa holders, so you may need to shop around to find those that do.

What criteria might apply to a temporary resident car loan?

Visa type

Holders of certain visa types have a much better chance of getting a car loan in Australia than others. These include those on 482 temporary skills shortage visas and student visas. People on working holiday or bridging visas will likely find it more difficult.

This is because lenders prefer to see some certainty of tenure of your time in Australia. Visa holders who don't have a guaranteed time period for residency, or one that may be subject to legal challenge, will be seen as particularly higher risk.

Generally, people fulfilling requirements on the way to achieving permanent residency may be considered more favourably, but the criteria can vary from lender to lender.

Visa length and loan term

These are critical factors. Lenders will not approve car loans for periods longer than the length of a temporary resident's visa. This means if you're applying for a loan term longer than your stay under your current visa, the loan won't be approved - even if you're applying for a visa extension.

For some, this may mean trying to take out a car loan for a shorter period of time - the minimum term is generally two years. However, this may not be serviceable for all income levels.

Income

As with any borrower, lenders will require a minimum regular income, preferably from a full-time job or from a consistent income source. However, many visas have strict limitations on the number of jobs a temporary resident can hold or how many hours they can work each week. If a lender sees you are in breach of your visa conditions in earning your income, they will not lend to you.

Credit rating

Lenders will check your credit rating in Australia only. Any credit rating or credit history you may have in another country will probably not be taken into account.

Insurance

Many new car lenders particularly will require borrowers to take out comprehensive insurance to cover your vehicle and others in the event of an accident. This is different to compulsory third party insurance (CTP) which covers injury liability and is usually attached to your registration.

It's worth noting this type of insurance may be more expensive for those without a driving history in Australia, or if you plan to use the vehicle for rideshare services.

What car loans are available to temporary residents?

Temporary residents should apply for the type of car loan that best suits their needs. In Australia, there are several types of loans and loan terminology you will typically come across:

Secured car loans

These loans use the vehicle you are purchasing as security. This means if you default on your loan, the lender can repossess the car and sell it in a bid to recoup the debt. Because of this reduced lending risk, secured car loans typically come with lower interest rates.

Temporary residents might also stand a better chance of getting a secured car loan than an unsecured one as the lender has some recourse in getting its funds back in the event you run into trouble repaying your loan.

Unsecured car loans

These types of loans don't require anything to be offered as security against the loan, making them far riskier for lenders.

As such, unsecured car loans come with higher interest rates and your credit score is likely to be more important. If you don't have any credit history in Australia, that could pose an issue in getting a loan approved, no matter how high your income is.

Personal loans for car purchase

Personal loans also don't require the car, or other assets, to be used as security against the loan. They can offer flexibility in what they can be used for as well as their repayment terms. Generally, borrowers can choose a loan term between one to seven years which means you may be better able to tailor the loan term to the length of your visa. Again, your borrowing credentials are also likely to be put under closer scrutiny.

Fixed rate car loans

As the name implies, fixed rate loans have a set interest rate that will remain the same for the term of the loan. These may suit shorter-term loans, such as one that must be paid off within a set visa period. They also make budgeting easier as the repayments will remain consistent for the life of the loan.

Variable rate car loans

Variable rate loans are subject to the interest rate changing according to market rates and other factors. As temporary resident car loans tend to be for shorter periods, a rate change may not come up during the course of a loan. But if you sign up for one, be prepared for the rate - and your repayments - to fluctuate.

If you're looking to compare car loans, the table below features some of the most competitive car loans currently on the market:

Important Information and Comparison Rate Warning

How can I boost my chances of approval?

There are a few things you should consider before you submit a car loan application.

Visa expiry: Make sure you have more time left on your visa than the car loan term you are applying for, even if you intend to make extra repayments to pay the loan off faster. Lenders will generally build in a cushion for the loan to end several months before your visa to ensure you're not counting on the loan and the visa to have concurrent expiry dates.

Proof of residency: You may be a temporary resident, but some lenders will want to see that you are actually living in Australia. A rental agreement in your name at an Australian address or utility bills in your name may give you a better chance of having your loan approved.

Cash deposit: If you have a large deposit, a lender may be more willing to approve your application.

Proof of savings: Being able to show a record of consistent savings in Australia, via your savings account statements, may assist you in getting approved for a car loan. Many lenders will also require you to have an Australian bank account.

Income: Earning a stable, reliable income will generally stand you in better stead than getting income from casual or seasonal work, even if it is relatively highly paid.

Guarantor: Many lenders will look favourably on a loan application that has a guarantor - someone who agrees to be responsible for the loan repayments should you default on the loan.

Comparing temporary resident car loans

As with most financial products, there are several factors you'll need to check before deciding on a suitable car loan.

Loan term

The time left on your visa will be the main determinant of the loan term you should apply for. Make sure the loan ends several months before the expiry date on your current visa. This is what lenders will be looking for and it's always wise to apply for a loan where your credentials align with lender requirements.

Interest rate

The interest rate is one of the all-important considerations in taking out any loan. Be warned, temporary residents may face higher interest rates compared to advertised rates or those offered to Australian citizens or permanent residents.

This may apply to you if you have no credit history in Australia. Be prepared to pay a higher interest rate than you were planning.

Fees

Car loan fees can vary significantly between lenders. Even if a loan comes with no application fee, you may be hit with ongoing or exit fees at the end of the loan. The comparison rate can give some indication of the loan's true cost but it's always wise to check the fine print before you sign up to anything.

Flexibility

If you're planning to pay off your car earlier than your loan term - or want to put a tax refund or bonus towards paying down your loan - look for a car loan that allows you to make extra repayments without penalty.

Some lenders will restrict the amount of extra payments you can make or charge early exit fees if you pay off your loan before the end of the term you signed up for. Be clear on what's permitted to avoid being hit with extra fees.

Lender reputation

Once you've run your facts and figures, it's also wise to the check online reviews of the lenders you are considering. Make sure they are fair and honest in their dealings and easy to do business with. Unfortunately, there may be some unscrupulous lenders that try to take advantage of temporary resident borrowers so it's a good idea to seek advice from others to hear about their experiences and seek recommendations before proceeding.

Image by Jeremy Bishop via Unsplash

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