Car Finance Guide For Pensioners

Whether you’ve spotted an ideal car at a dealer, an auction or parked on the street with a sticker in the window, Rapid Loans can help you turn the car you have been dreaming about into the car you’re actually driving. We know that car sales move quickly and that you’re going to need a car loan provider who will work with you personally to help you secure your new set of wheels. 

We understand that loans for pensioners are often hard to come by, but they’re not impossible. Just because you’re on government support doesn’t mean you cannot access financial services when you need them. Every person has a different financial situation and it’s important to take the whole situation into consideration.

If you’re not sure what pensions are, they are a form of government payment that is provided to Australian residents if they meet a specified criteria. Common pensions seen in Australia are age, disability and parenting pensions. 

The age pension is typically the main income support payment for people who have reached Age Pension age, with the payment amount being different for single and partnered people. To be eligible for the Age Pension you must be 66 years of age or older, depending on what year you were born, be an Australian resident and have lived in Australia for at least 10 years. Eligible recipients are also required to meet specific income and asset tests. 

The Disability Support Pension (DSP) provides financial help to those who have a permanent physical, intellectual or psychiatric condition that prevents them from working. To be eligible for the Disability Support Pension, you need to meet both non-medical and medical rules.

Can You Get a Car Loan on The Pension?

You may be eligible for a car loan if you receive the Age Pension or family tax benefit. It’s worth keeping in mind that some allowances such as JobSeeker or Austudy are not accepted. The loan application process for a vehicle, if you’re on the pension, might be handled on a case-by-case basis and may differ between lenders according to their eligibility criteria. 

It’s important to note that your range of options will generally be more limited than someone who is employed full-time. At Rapid Loans, a range of government pensions and benefits may be conditionally accepted. However, you will need to provide evidence that you have some form of income outside your pension, such as from investments or other assets. This supplementary income can greatly improve your chances of loan approval as lenders will either have a set minimum income that you need to meet or require that you earn a regular permanent income. A lender will look at how much you earn from your pension, any Centrelink payments or other income and then compare it to the repayment amounts. Lenders will also take into consideration additional outgoing expenses such as rent, credit cards and pre-existing loans to establish a suitable affordability based on your income as you’ll need to demonstrate that you’re able to make the repayments. You need to be honest with yourself (and your lender) about how much you can afford to repay and what your financial situation realistically is.

At Rapid Loans, we require applicants to meet a minimum income amount of $400 per week, not including COVID-19 income support. 

Under Section 133 of the National Consumer Credit Protection Act 2009, lenders are prohibited from entering a credit contract or increasing the credit limit if their assessment finds that it would  be unsuitable. This could arise if the assessment reveals the consumer will be unable to comply with their financial obligations or if they could only comply with substantial hardship. This is assessed at the beginning of a proposed contract or if a client’s credit limit is being evaluated to potentially be increased.

When taking into consideration your financial situation and adversity to risk, you will need to understand the difference between fixed and variable interest rates, which you’ve undoubtedly come across in your loan comparison search. 

  • Fixed – A fixed rate loan has the same interest rate for the entirety of the borrowing period. This means that the cost of borrowing money remains constant throughout the life of the loan. If you’re on a pension, a fixed rate loan may be more suitable than a variable rate loan as it provides certainty around the cost of your repayments. Rapid Loans offer fixed rate secured loans. 
  • Variable – A variable rate loan has an interest rate that changes over time in response to the market, either increasing or decreasing. Variable rate loans often have lower interest rates because they are a riskier choice for consumers. This loan type is beneficial for borrowers when there is a declining interest rate as their loan payments will decrease as well. They do however run the risk of increasing if the market changes. 

We recommend that you check your eligibility for a loan before applying and also check the loan’s terms and conditions before agreeing to take on a loan. Some loans will have shorter loan terms, higher repayments or a higher interest rate which may not suit your financial situation. When you make a formal application for credit or a loan, this will also be noted on your credit report. According to Money Smart, this impacts your credit score which is calculated by the amount of money you’ve borrowed, the number of credit applications you’ve made and whether you’ve paid on time. Depending on the credit reporting agency, your score will be between 0 and either 1,000 or 1,200. A higher score means the lender will consider you less risky while a lower score will affect your ability to get a loan or credit. 

Can a Retired Person Finance a Car? 

Congratulations on your retirement, what a milestone! With Australians living longer than ever before, more people are requiring a bigger pool of savings and cash to fund their lifestyle in the years after they have finished working. 

According to the Australian Bureau of Statistics, during the 2018-19 financial year, there were 3.9 million retirees. The average retirement age was 55.4 years and half a million people intended to retire within the next five years. The Age Pension was noted as the main income source for most retirees. Interestingly, more people retired with superannuation as their secondary source of income, but the increase was greater for men than women. 

We want to help you realise that retirement is not the end of the road, it’s just the beginning of the open highway. If you meet the criteria and are approved for a car loan, you might be surprised to learn what you may qualify for. Rapid Loans vehicle finance can also be used on boats and caravans which is perfect for explorers. Whether you’re travelling indefinitely, simply choosing to spend the winter months up north or hoping to discover the joys of the open road. According to Cars Guide, the five best options to travel to Australia for retirees is:

  • Toyota LandCruiser
  • Nissan Patrol
  • Toyota Prado
  • Ford Ranger
  • Mitsubishi Pajero

If you’ve said hello to your age pension, it’s important to keep in mind that some lenders do not consider payments or benefits income and may refuse to progress your application beyond the verification stage. Rapid Loans does not accept any income from age pension, therefore you will need to provide proof of income of at least $400 per week outside your age pension. This income may come from property investments or superannuation. Investments from shares are not typically accepted as they tend to fluctuate depending on the market. 

Another important consideration is the duration of the loan term. Rapid Loans require clients to pay off a loan in full by their 70th birthday. Unlike a home loan which often has a term of 20 years or more, Rapid Loans loan terms vary from 18 to 60 months with loans ranging from $2,001 up to $25,000. According to CreditKarma, the average car loan term was more than five years (around 69 months for new cars and 65 months for used vehicles) in the first quarter of 2019. It’s useful to keep this in mind when you’re researching loan options. 

If you’ve been successful in your loan application with Rapid Loans, congratulations! It’s also good to know that you can reach out to the Rapid team at any time and ask for a statement of the payout figure at a specific date. Another option, should your financial situation allow it, is to pay out your loan with Rapid Loans early. If this situation comes about, simply reach out to one of our consultants and they will walk you through the process. 

What do I Need to Apply for a Loan?

Vehicle loans can be easy to arrange if you have a good credit history, possess all of the relevant documents and are financially able to pay back your loan. 

Lenders will generally ask for proof of income and bank statement history including any current Centrelink Income Statements, three months of bank statements showing continuous income, proof of your place of residence and verification of your identity. If you are receiving some type of pension, to determine if you meet the lender’s requirements they will look at:

  • What type of pension you receive
  • The ‘income’ you receive from pension payments
  • Your credit history
  • The value of your assets
  • Your residency status
  • The proposed loan amount and loan term 

As part of your loan requirements, you will also need to take out comprehensive car insurance. Typically, insurance companies consider a driver’s age alongside other relevant statistics to establish a risk factor when calculating premiums. Seniors and pensioners may be able to reduce the price of their car insurance by increasing their excess and restricting the age of drivers, which could mean children or grandchildren won’t be able to take your new wheels for a spin. Some insurance providers, like Australian Seniors and Budget Direct, offer a seniors’ discount when you purchase online.

We encourage you to familiarise yourself with the terms, conditions and obligations of the loan and insurance policy before agreeing to any financial commitments. 

What is the Pension Loans Scheme? 

It’s good to have options when you’re in need of finance quickly. If you aren’t eligible for a car loan with your preferred lender, another option could be the Pension Loans Scheme offered by the Australian Government. This is a scheme that provides Australians who are receiving an eligible pension payment a voluntary, non-taxable fortnightly loan from the Australian Government.

As will all loans, there are conditions that must be met to determine your eligibility for the government loan. Most notably, you will need to use Australian real estate as security for the loan as you can choose to make regular repayments or instead opt to pay it in full when you sell your property.

The Pension Loans scheme differs from typical loans as you can choose the amount of loan payment you get paid each fortnight, as a lump sum is not offered.

You will have to pay interest at an annual rate of 4.5% with the interest rate compounding each fortnight on the outstanding loan balance. This means the longer you take to repay the loan, the more interest will accumulate. There are also costs associated with starting and ending the loan.

At Rapid Loans, we’re committed to helping all consumers find a suitable finance deal. Since 2003, Rapid Loans has been one of Australia’s go-to lenders when it comes to helping people,  from all walks of life, access car loans that meet their unique needs and lifestyle. Our goal is to get you behind the wheel of a new vehicle as soon as possible! 

Take the next step towards finding your new car and call Rapid Loans on 1800 875 802 or apply now for a car loan to discuss what car loan options may be available to you.