Car Loans – Impact on Home Loans Explained (2026)

Are you dreaming of owning your own home but concerned that your existing car loan might stand in the way? Navigating the world of loans can be daunting, especially when you're trying to understand how one loan might impact another. Fortunately, you're not alone, and understanding the relationship between car loans and home loans can help you take informed steps towards homeownership.

Understanding How Car Loans Affect Home Loans

A car loan is a common form of personal debt in Australia. It allows borrowers to purchase a vehicle and repay the loan over a set period, typically with interest. While a car loan can help you acquire a much-needed vehicle, it also adds to your overall debt profile. When applying for a home loan, lenders will assess your financial situation comprehensively, including any existing debts, to determine your borrowing power.

In 2026, Australian lenders are increasingly cautious about approving home loans to individuals with significant existing debts, including car loans. This is due to stricter lending criteria aimed at reducing financial risk. Understanding how your car loan affects your home loan application is crucial to improving your chances of securing a mortgage.

Current Market Information: Rates, Requirements, Options

As of 2026, interest rates for car loans in Australia typically range from 6.49% to 12%. The exact rate depends on factors such as your credit score, loan term, and the type of car you are purchasing. For home loans, rates are generally lower, ranging from 4.25% to 6.75%, depending on the lender and your financial circumstances.

Lenders will consider several factors when assessing your home loan application, including:

• Credit score: A higher credit score can result in better loan terms.
• Debt-to-income ratio: Lenders prefer a lower ratio, indicating you have more disposable income relative to your debts.
• Employment stability: Consistent employment history can enhance your application.
• Existing debts: Lenders will evaluate your ability to manage and repay multiple loans.

Esteb and Co, with access to a panel of 83+ lenders, can help you navigate these requirements and find a lender that aligns with your financial profile.

Steps to Improve Your Home Loan Application

Here are practical steps you can take to enhance your home loan application, even with an existing car loan:

1. Review Your Credit Report: Obtain a copy of your credit report to ensure there are no errors. Address any discrepancies promptly.
2. Reduce Outstanding Debts: Pay down existing debts if possible. This will improve your debt-to-income ratio, making you more attractive to lenders.
3. Budget Wisely: Create a budget to manage your finances more effectively, freeing up more income for loan repayments.
4. Consult with a Broker: A mortgage broker like Esteb and Co can provide personalised advice and match you with suitable lenders from their extensive panel.
5. Consider Loan Consolidation: If feasible, consolidate your debts to lower monthly repayments and simplify your financial obligations.

Expert Tips and Considerations

Here are some expert tips to consider when managing a car loan alongside a potential home loan:

• Timing Is Key: If possible, delay your home loan application until your car loan is partially or fully repaid. This can significantly improve your financial standing.
• Negotiate Your Car Loan Terms: If your car loan has high interest rates, consider refinancing to a better rate, reducing your monthly financial burden.
• Maintain a Healthy Credit Score: Regularly check your credit score and take steps to maintain or improve it, as it plays a critical role in loan approvals.
• Seek Professional Advice: Navigating the complexities of loans can be challenging. Professional mortgage brokers can offer insights and strategies to enhance your application.

Frequently Asked Questions

• Can a car loan prevent me from getting a home loan? While a car loan alone might not prevent you from obtaining a home loan, it can affect your borrowing power and the terms offered by lenders.
• How does a car loan impact my debt-to-income ratio? A car loan increases your total monthly debt repayments, which can elevate your debt-to-income ratio, a key factor lenders evaluate.
• Should I pay off my car loan before applying for a home loan? Paying off or reducing your car loan can improve your financial standing and make your home loan application more attractive to lenders.
• What role does my credit score play in securing a home loan? A good credit score can significantly impact your ability to secure a home loan with favourable terms, as it reflects your creditworthiness.
• Can Esteb and Co help with managing multiple loans? Yes, Esteb and Co can provide guidance on managing existing loans and finding a suitable home loan from their panel of 83+ lenders.
• Is loan consolidation a good option? Loan consolidation can simplify your repayments and potentially lower your interest rates, but it's important to assess if it's the right choice for your financial situation.
• What documents do I need for a home loan application? Typically, you'll need proof of income, identification, credit report, and details of existing debts, including your car loan.