Straight Answers · Car loans

Does a car loan stop me getting a home loan?

Bayley Clarke · Mortgage broker on the road · Last checked 3 August 2026 · 5 min read

The short answer

It can, and it costs far more than people expect: roughly four dollars of borrowing power for every dollar you owe. A $21,000 car loan was costing one client about $80,000 of capacity. A $170 a week repayment cost another about $110,000 of purchasing power.

Which makes it the exact inverse of a HECS debt. Same money owing, roughly ten times the damage. If you're going to worry about one debt before a home loan, worry about this one.

Why a car loan hits so much harder than HECS

People lump their debts together and assume the biggest balance does the most damage. It's almost never true.

HECS comes out as a slice of your income and vanishes when the income does. A car loan is a fixed repayment on a fixed term, and a lender treats it as money committed every single month no matter what happens to you. That difference is worth a house.

Capacity lost per dollar owing, from two real files

HECS debt0.4×$30,000 owing cost about $12,000 of capacity

Car loan4×$21,000 owing cost about $80,000 of capacity

Which is why "should I pay off my HECS first" is almost always the wrong question, and nobody ever asks the right one.

The teacher who blamed the wrong debt

A permanent full-time teacher came to me: $97,000 a year, $15,000 saved, $23,000 of HECS, and a car loan at $170 a week taken out months earlier after her old car was written off. She was convinced the HECS was the problem. Nearly everyone is.

What the HECS cost her

a fraction

Of what the car was costing her, on the same call.

What the car cost her

~$110,000

Purchase price fell from about $480,000 to $371,000.

Houses in her town were sitting at $480,000 to $520,000. With the car loan she topped out at a $371,000 purchase. The car was the entire difference between a house and a two bedroom unit, and she'd had it five months.

Nobody tells you this at the dealership. The repayment looks affordable against your pay, and it is. It just isn't affordable against your mortgage.

Two that nobody sees coming

Salary sacrificing it doesn't get you out of it

Novated lease through work, comes out pre-tax, feels like it isn't really a debt. Lenders don't see it that way. The full lease or finance repayment goes on the application as a liability, exactly like any other car loan. Worse, with some lenders it can effectively hit you twice: the deduction shrinks the income they see, and the repayment still gets counted on top.

Dealer finance doesn't always show on your credit file

I had a refinance fall over because of this one. I asked about a car loan I could see an enquiry for on the file. No open account, just the enquiry. Turned out he'd financed a BMW through the dealership at $330 a fortnight, and the open loan never made it onto his credit file. Between that and his credit cards, there wasn't enough capacity left at any lender on the panel. The whole refinance stopped there.

Tell your broker about every car loan, including the ones you're not sure count. We'd rather find out on day one than day thirty.

When paying it out is the wrong move

The cash is your deposit. Capacity and deposit are separate ceilings and you need to clear both. Winning $80,000 of capacity is no use if you've spent the money you needed at settlement.
There's an early payout fee. Some car finance is punishing to exit early. Check the number before you commit.
You need the car. If you're in a trade or a regional area with no other option, selling it isn't a strategy.

And a fourth one people don't think about: if you're planning to buy in the next twelve to eighteen months, the best move is often not taking the car loan at all. A dealership will sign you up in an afternoon. It takes about five years to undo.

Find out what yours is actually costing

Half an hour and I'll model it both ways on your real numbers. With the car loan and without it, so you can see the return before you decide whether to touch it. If keeping the car is the right call, I'll say so.

Book a 30 minute call Call 0437 189 939

No application, no credit check, nothing on your file. Just the numbers.

Next question

How do I work out my borrowing capacity if I'm self-employed as a sole trader?

Everything above assumes a payslip. If you're a sole trader, the number a lender uses isn't the one on your tax return. Coming next in the series.