What is Car Loan Serviceability?
Here's what you need to know about car loan serviceability
When you start looking for a car loan, there can be lots of new words and terms that you may not understand. At Positive Lending Solutions, we want to make the car loans process as simple and stress-free as possible – so we’re here to help you understand exactly what all the jargon means, starting with car loan serviceability.
Discover all the ways we can help you with car loans.
What is loan serviceability?
You’ll hear the term ‘serviceability’ used for different types of loans but most commonly with car and home loans.
Car loan serviceability relates to the ability of you, the borrower, to make loan repayments based on a number of factors, including:
This will include things like your regular salary, a company car (if fully maintained), bonuses and commission earned. Some lenders may also take into account rental income from properties if you have any, as well as considering Centrelink benefits that you may receive.
This will include outgoings payments that you make, including payments for existing debts, living costs, and dependants you are responsible for.
Your car loan serviceability will also take into account the total loan amount and other commitments that you have.
It’s always useful to know as much as possible about car loans, so having an idea about car loan serviceability will help you understand exactly how lenders work and how they’ll view you when you apply for car loans.
Understanding car loan serviceability assessments
A serviceability assessment is the process which considers all of the factors mentioned above which make up your overall financial status. They help a lender determine how able you are to ‘service’ or pay back car loans.
Balancing your income against expenses and expenditures will allow lenders to get an idea of what type and amount of loan you’ll be able to pay back.
What happens next?
Once the factors have been reviewed, an overall figure will be generated which is often known as a debt service ratio. A debt service ratio is your monthly debt expenses as a proportion of your monthly income.
With car loans, most lenders will set a maximum debt service ratio of between 30 and 35 per cent, but there are obviously specialist lenders who will have different limits.
It’s really useful to have an idea of your debt service ratio and how ‘serviceable’ your car loan will be to a lender.
Why do lenders look at car loan serviceability?
In short, car loan serviceability relates to how attractive your application is to a lender. It’s a useful way for lenders to get a good understanding of exactly how capable you are as a borrower in terms of paying back the car loans.
Speak to us today to find out more about car loans
At Positive Lending Solutions, we have decades of experience working to help people find the right car loans. With our knowledge of the industry and our access to a wide range of lenders, we’ll help you understand all the terms and key concepts you need when applying for car loans.
We can help you understand car loan serviceability and everything else involved in the process. Find out how we can help you with your car loan.