Does Paying off a Credit Card Make a Difference When Applying for a Personal/Car Loan?

Ldraouht on 29/05/2019 - 16:16
Last edited 29/05/2019 - 16:18

I'm just after some advice around applying for a loan when purchasing a new car.

I'm looking at buying a new (second hand) car, I'm ideally after something around the 10k price, I am fully aware that it is not ideal to get a loan for a second vehicle but I need a loan as my current car is on its last legs and I would rather sell it for more value now as it in is in working condition and will pass roadworthy.
I will only need the loan as a stepping stone between selling my current vehicle and probably 3-4months of paychecks to pay it off, as such I am only looking for a minimum loan of 5k with no early payout fees and preferably unsecured as I will probably be buying a vehicle that is 7+ years old.

My only concern with applying for a loan is that I am a casual worker, I've worked with the same company for almost a year and make an average salary but the fact remains I'm casual and some banks will automatically decline me based on that, is this correct? I have a relatively good credit history and I'm lead to believe that being declined impacts this.

I also have $900 on credit card with 12 months interest-free on it, I planned to pay this off within the next month or two but would it be best when applying for a loan just to pay it all off now and have no debt?

Financial Credit Card

Comments

  • boomramada on 29/05/2019 - 16:25
    +1

    You will have no issues, talk to your bank, they will figure it out for you, based on your income etc.
    Ie, ask for 10k loan, if they refuse, ask what if I reduce my credit limit, they usually advice this to you anyway.

  • The Wololo Wombat on 29/05/2019 - 16:53
    +5

    Paying off a credit card makes NO difference. Having it or not does.

    Banks don't care what your balance is, what your interest rate is etc - what the credit limit is is what matters. They will usually do their calculations assuming you have maxed the card out at around 20% interest p.a. and work out what your repayments should be from that.

    That's my experience anyway.

    So, you might need to cancel the card, not just pay it off.

  • Mulga Bill on 29/05/2019 - 18:32
    +1

    I am a lender for a bank.

    All banks are different however;
    - We need you to be working casual in your current position for at least 12 months otherwise 6 months in current position and 2 years in same industry (with no gap).
    - We use 4% of the credit card limit as the commitment regardless of balance. You may be able to just reduce the limit to $900 so you still have your interest free purchase and by not paying out the $900 with cash you can put this $900 towards the car.
    - We have fixed rate unsecured personal loans with a fixed $20 early payment fee if paid out early (some banks will charge break costs which can be quite high if paid off in 5 months)
    - Multiple credit inquiries can/will impact your credit report. Personally I don't do a credit check until I have completed the affordability calculation for my customers to reduce this impact. In any case I don't believe a bank can do a credit check unless you authorise it (generally by signing an application form) so you could possibly just request an affordability quote before proceeding.

    • draouht on 29/05/2019 - 23:41

      Damn, didn't even consider just reducing my credit limit, jumped the gun and just paid it out and was going to cancel as per the other comments. I will reduce it down to 1k just for emergencies. I've looked at ING who offer a personal loan at 8.99% with no fees as I have a linked debit card and seems to be my best option. Any thoughts?

      • quasi on 03/09/2019 - 09:48

        came across this oldish tread as I'm looking at a car loan. replying in case its still of use to you.
        all the banks are conservative with new credit (or limit increases) now so be aware that if you close your card, you will have a lot of hoops to jump through in the future to reopen (same applies to increasing your limit in the future. if your bank has a temp decrease option, that might be ideal).

        lower limit is good as it increases your ability to afford the car loan while allowing you to keep the card on your credit file and show good payment history (which increases your score).

        last tip, as this is something i am looking for: find a lender with no early exit fees and get a loan for the max term possible. this makes the repayments low and thus easier to qualify, possibly even with your credit card intact. then, in 3-4 months, you can just payout the loan and not pay fees. or if the rate is good, perhaps just keep the loan and put the extra money into paying off higher interest loans or into investments.

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