A car loan or asset finance facility reduces borrowing capacity because a lender counts the full monthly repayment as a fixed commitment before it works out what you can afford on a new loan. The size of the repayment, the term, any balloon and whose name the facility is in all change how much capacity it uses.
On episode 105 of the podcast, Scott Knight of Motorlend joined Dion to talk about asset finance for business owners. One thread ran through it: the facility behind a vehicle or a machine shows up in every assessment that follows.
How does a lender count a car loan?
As a commitment that comes off the top. A lender starts with your income, subtracts tax, living costs and the repayments on every existing debt, and tests what remains against the new loan at an assessment rate 3 percentage points above the actual rate (APRA, May 2026).
The car repayment is counted in full, every month, for as long as the facility runs. It does not matter that the vehicle is nearly paid off in your mind. If the repayment is still being made when you apply, it is in the calculation.
Which choices change how much capacity it uses?
| What it does now | What a later lender sees | |
|---|---|---|
| Shorter term | Higher monthly repayment | More capacity used, for less time |
| Longer term | Lower monthly repayment | Less capacity used, for longer |
| Balloon | Lower monthly repayment | A lump sum still owing at the end |
| Held in the business | Paid by the business | May be treated as a business cost by some lenders |
| Held personally | Paid from your income | Counted against you directly |
None of these is right or wrong on its own. Each is a trade between the monthly figure, the total cost and how the facility reads on the next application. How a business-held facility is treated depends on the lender and on what the financials show.
Does it matter who arranges the finance?
It can. A finance desk inside a dealership is generally presenting the options available through that dealership's own arrangements. That is a narrower field than the wider lender market, and it is arranged with the sale in view, not your next three years.
ASIC's Moneysmart makes a related point about cost: a car loan might be conveniently arranged at the dealership, but the fine print may show you are paying fees to several parties (ASIC Moneysmart). Moneysmart also notes the lender must give you a comparison rate, which combines the interest rate and fees into a single figure so one loan can be compared with another.
A very low advertised rate is usually tied to conditions: a required deposit, a shorter term or a balloon. That does not make the offer unsuitable. It makes the headline number incomplete.
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Should you buy the car or the property first?
If both are planned, the order matters. A new car loan taken out shortly before a property application reduces the capacity available for the property, and the enquiry sits on your credit file. Taken out afterwards, it is assessed against a position that already includes the property loan.
There is no universal answer. A business that needs a vehicle to earn its income cannot always wait. The point is to decide the order on purpose. Budget first, asset second: work out what the business can support and what the property plan needs before walking into a showroom.
What about business owners?
For a self-employed borrower the facility appears twice. It is a commitment in its own right, and its costs run through the financial statements a lender uses to assess income. How those two views interact differs between lenders, which is one reason self-employed serviceability varies so much from one lender to the next.
Asset age matters too. The year of manufacture can widen or narrow the lenders available, and an older asset that suits one lender may not be considered by another. Whether a low-doc or full-doc pathway applies depends on what the business can evidence. The tax treatment of any facility is a question for your accountant.
What should be checked before signing?
- The monthly commitment. And what it does to your borrowing capacity for the next two to five years.
- The term. Whether it ends before or after your next planned purchase.
- Any balloon. Whether it matches what the asset will realistically be worth. See balloon payments explained.
- Whose name it is in. The business or you personally.
- The comparison rate and fees. Not only the headline rate.
Common questions
Does a car loan affect my borrowing capacity for a home loan?
Yes. Lenders count the full monthly repayment on a car loan as an existing commitment before working out what you can afford on a new loan. The higher the repayment, the more borrowing capacity it uses for as long as the facility runs.
Should I pay off my car loan before applying for a home loan?
It can increase borrowing capacity because the repayment drops out of the assessment, but it also uses cash you may need for a deposit and costs. Which matters more depends on your position, so it is worth modelling both before deciding.
Is a car loan in a business name counted against me personally?
It depends on the lender and what the financial statements show. Some lenders treat a facility paid by the business as a business cost, while others count it against the borrower. A director’s guarantee can also be taken into account.
Is dealer finance more expensive?
Not always, but a low advertised rate is often tied to conditions such as a deposit, a shorter term or a balloon. ASIC’s Moneysmart suggests comparing loans using the comparison rate, which includes fees, for the same amount and term.
The takeaway
A vehicle is the visible decision. The facility behind it is the one a lender reads for years. Term, balloon, ownership and timing each change how much room is left for property.
If you are financing equipment and planning a purchase, Book a Call. Fifteen minutes with the team will tell you whether the two are working together or against each other.
This article is general information only. It does not take your individual circumstances into account and is not credit, tax, legal or financial product advice. All lending is subject to individual assessment and lender criteria. Speak with your own advisers before acting. The tax treatment of asset finance is a matter for your accountant.