Every regular repayment you already owe comes straight off the amount a lender is willing to let you borrow. A car loan costing $850 a month can reduce borrowing capacity by roughly $100,000 once it is run through a lender’s assessment rate, and smaller commitments such as buy now pay later plans and unused credit card limits add up faster than most applicants expect. Knowing how each one is treated helps you decide what to tidy up before you apply for a home loan.
How Lenders Treat an Existing Car Loan
A car loan is counted as a fixed monthly liability in the serviceability calculation. Most lenders use the actual repayment shown on your loan statement or bank statements, and some recalculate it using their own rate and the remaining term. The repayment is deducted from your monthly income before the lender works out what is left over to service the new home loan.
Loans with a balloon payment can catch borrowers out. A low monthly repayment looks helpful, but some lenders also consider the lump sum due at the end of the term, particularly if it falls due soon after settlement.
What About a Novated Lease?
A novated lease is paid from your salary before tax, so it reduces the net income shown on your payslip. Lenders handle this in different ways. Some add the lease payment back to income and then count it as a liability, while others simply assess the lower net pay. The result can differ by thousands of dollars of borrowing capacity depending on the method, which is one reason novated lease holders benefit from comparing lenders.
How Buy Now Pay Later Shows Up in Your Application
Buy now pay later services have been regulated as a form of credit since June 2025, and providers now need an Australian credit licence. BNPL accounts increasingly appear on credit reports, and lenders can also see regular BNPL repayments in the bank statements they review during assessment.
Lenders differ on how they treat these plans. Some count the regular repayments as a liability, some treat the available limit in a similar way to a credit card, and others look at frequent BNPL use as a sign of how tightly a household’s budget is stretched. Many application forms now ask directly whether you hold any BNPL accounts, and the answer needs to match what appears on your statements.
Why Credit Card Limits Matter More Than Balances
Credit cards are assessed on the limit, regardless of the balance or whether you clear it every month. Most lenders treat around 3% of the limit as a monthly repayment. A $10,000 limit with a zero balance can therefore be counted as a $300 monthly commitment.
Reducing or closing cards you do not need is one of the simplest ways to lift borrowing capacity before applying. It costs nothing and takes effect as soon as the lower limit shows on your statements.
How Much Each $100 a Month Costs in Borrowing Power
Lenders regulated by APRA assess a new home loan at the loan rate plus at least 3 percentage points. With a loan rate around 6.5%, that means an assessment rate of about 9.5%. At that rate, every $100 of existing monthly commitments reduces the loan amount a borrower can service by roughly $12,000 over a 30-year term.
The examples add up quickly. An $850 car loan repayment equals around $100,000 of borrowing capacity. A $10,000 credit card limit, assessed at $300 a month, equals around $36,000. A couple of BNPL plans and a small personal loan can take another $20,000 to $30,000 off the figure. These are approximate and depend on the lender’s assessment rate and the borrower’s wider position, but the direction is consistent.
Should You Pay Off Debts Before You Apply?
It depends on what the cash is needed for. Clearing a car loan lifts borrowing capacity, but it also reduces the savings available for a deposit, stamp duty and a buffer after settlement. Paying down a debt only makes sense if the gain in borrowing capacity outweighs the reduction in your deposit, and in some cases a slightly larger deposit has the bigger effect because it can avoid lenders mortgage insurance or reach a better pricing tier.
Timing and Disclosure
Taking on a new car loan or BNPL plan between pre-approval and settlement can change the lender’s assessment and, in some cases, put formal approval at risk. Any new credit application also leaves an enquiry on your credit file. Holding off on new finance until after settlement keeps the application clean.
Every commitment needs to be disclosed accurately. Lenders cross-check applications against credit reports and bank statements, and an undisclosed debt that turns up later can delay or derail an approval.
Key Takeaways
- Existing car loan repayments are deducted from your income in serviceability and can reduce borrowing capacity by tens of thousands of dollars.
- Novated leases reduce your net pay, and lenders differ on whether they add the payment back or assess the lower income.
- Buy now pay later has been regulated as credit since June 2025, and lenders can see BNPL repayments on statements and credit reports.
- Most lenders assess credit cards at around 3% of the limit each month, even when the balance is zero.
- At a 9.5% assessment rate, every $100 of monthly commitments reduces borrowing capacity by roughly $12,000.
- Avoid taking on new credit between pre-approval and settlement, and disclose every existing debt in full.