Yes, you may be able to get home loan pre-approval while you have a car or motorcycle loan. Your lender will assess whether you can afford the proposed mortgage alongside your existing repayments and living expenses.
You may have financed a vehicle for work or everyday transport before buying your first home became the next goal. Having that commitment does not automatically mean you need to put your property plans on hold.
The useful first step is to understand how the repayments affect your borrowing position. You may be able to keep the vehicle loan, benefit from clearing it or need more time to prepare.
How Does Vehicle Finance Affect Your Borrowing Capacity?
A car or motorcycle repayment uses income that could otherwise help cover mortgage repayments. The lender needs to consider that commitment when assessing your application.
For example, a $600 monthly car repayment must fit alongside your proposed home loan and household costs. However, it does not translate into a fixed reduction in borrowing capacity.
The outcome depends on your income, expenses, deposit, other debts and the amount you want to borrow. Lenders may also assess the same application differently.
Your broker will generally need your vehicle loan balance, repayment amount, remaining term and details of any balloon payment. Westpac’s home loan application guide explains the broader information lenders request about income, expenses, assets and liabilities.
Allow for vehicle running costs too. Insurance, registration, fuel and maintenance still need room in your budget after you become a homeowner.
Does a Motorcycle Loan Count Too?
Yes. Motorcycle finance is also a commitment that needs to be disclosed and assessed.
A smaller bike loan may be easier to accommodate than a larger car loan, but even a modest repayment can matter if your budget is already close to its limit.
If you are considering buying or replacing a bike, our motorcycle finance guide provides background on your options. Discuss your home-buying plans with your broker before arranging new finance.
Do You Need to Pay Off Your Vehicle Loan First?
Not necessarily. Clearing the loan removes a repayment, but using savings to do so also reduces the cash available for your deposit and buying costs.
Consider a hypothetical buyer with $90,000 in savings, an $18,000 car loan payout figure and a $550 monthly vehicle repayment.
Paying out the loan would leave $72,000 in savings before purchase costs. Once the loan is fully paid and closed, the buyer would no longer have the $550 repayment.
Keeping the loan preserves the $90,000 in savings, but the vehicle repayment remains part of the mortgage assessment and household budget.
Neither option is automatically better. Before deciding, compare:
- Your borrowing position with and without the vehicle loan.
- The deposit and buying costs you need to cover.
- The savings buffer remaining after settlement.
- Any vehicle loan payout fees or balloon payment.
If the loan is nearly finished, provide its scheduled end date. Your broker can check how the lender would treat it rather than assuming the repayment can be excluded.
Can You Roll Vehicle Debt Into Your Mortgage?
Potentially, but this requires a separate assessment. First home buyers should not assume their purchase mortgage can include extra funds to clear vehicle finance.
For existing homeowners, consolidation generally involves increasing or refinancing a mortgage and using the additional funds to pay out the vehicle loan. Available equity, affordability and lender requirements all matter.
Our guide to adding a car loan to your mortgage explains the options in more detail.
A lower repayment can still mean more interest
A mortgage may offer a lower interest rate than vehicle finance. However, spreading the vehicle debt over a much longer term can increase the total interest paid.
You could still be paying for the vehicle long after replacing it. ASIC’s Moneysmart debt consolidation guide recommends comparing the loan term, fees and overall cost.
If consolidation is suitable, discuss a repayment schedule that clears the vehicle-related amount sooner. Also understand that your home becomes security for that additional borrowing.
What If You Want New Vehicle Finance During Pre-Approval?
Speak with your broker before applying. Home loan pre-approval reflects the financial position assessed at the time. A new vehicle repayment changes that position and may affect what the lender will lend.
This includes upgrading a car, financing a motorcycle or borrowing to cover a balloon payment. Using savings for a vehicle deposit may also reduce the funds available for your home purchase.
Give your broker the proposed purchase price, loan amount and repayment before committing. Keep them informed of changes through to settlement.
Pre-approval remains conditional. Final approval requires further checks, including assessment of the property. Read the NSW Government’s conditional approval guide for more information.
How Can You Prepare for Pre-Approval?
Start with an accurate picture of your finances. Bring your income documents, savings details, living expenses and statements for all existing debts.
For your vehicle finance, include the repayment, remaining term and any balloon amount. Request a current payout figure if you are considering closing the loan.
Ask your broker to compare keeping the loan, paying it out and waiting until it is repaid. The goal is a workable deposit and repayment budget, with enough cash left for buying costs and unexpected expenses.
Our first home buyer pre-approval article explains how this process can help you prepare for your property search.
Having vehicle finance is a reason to review your position and plan your next step. You do not need every answer before starting the conversation.
Have a car or motorcycle loan and want to buy your first home? LoanBrix can help you understand how your existing repayments fit into your home loan plans.
