Living costs are still climbing, and that has a direct bearing on how much a lender will let you borrow for a car. The latest Australian Bureau of Statistics figures show the squeeze is uneven across households, and understanding how lenders read your expenses can be the difference between the loan you want and a smaller one.
What the latest living cost data shows
The ABS Selected Living Cost Indexes for the June 2026 quarter, released on 5 August 2026, recorded rises between 0.5 and 1.5 per cent across household types for the quarter. Employee households saw the largest increase at 1.5 per cent, while age pensioner households rose 0.5 per cent and self funded retirees 0.6 per cent.
Over the year to the June 2026 quarter, living costs rose between 3.7 and 4.7 per cent depending on the household type. For employee households the annual figure was 3.7 per cent. The main contributors were insurance and financial services, food and non alcoholic beverages, and housing. A standout driver was mortgage interest charges, which rose 8.2 per cent for employee households in the quarter as banks passed on the earlier cash rate rises.
The takeaway is that working households, the group most likely to be applying for a car loan, are carrying the heaviest cost of living growth, largely because they hold mortgages.
What the numbers mean for your budget
An annual living cost rise of 3.7 per cent for employee households sounds modest, but it compounds on top of the increases of recent years. Food, insurance and housing are non negotiable categories, so a rise there cannot easily be trimmed the way a discretionary purchase can. When these essential costs grow faster than pay, the surplus that a lender can lend against for a car shrinks in real terms. For households that also hold a mortgage, the 8.2 per cent quarterly jump in mortgage interest charges compounds the effect, which is why the same salary supports a smaller loan than it did a year or two ago.
How lenders treat your living expenses
When you apply for car finance, a lender builds a picture of your monthly surplus, the income left after tax, existing debts and living costs. The living costs part is where many applicants are caught out. Lenders do not simply take your word for it. They compare the figure you declare against a benchmark and generally use the higher of the two.
The most widely used benchmark is the Household Expenditure Measure, or HEM. It estimates a reasonable minimum spend on essentials based on your income, location and household size. If you declare living costs below the HEM figure for your circumstances, the lender will usually substitute the benchmark, which can reduce your assessable surplus and therefore your borrowing power.
Why declared expenses matter more in a high cost period
As living costs rise, the HEM benchmark rises with them, and so does the scrutiny lenders apply to bank statements. If your actual spending is clearly higher than the benchmark, the lender will use your real figure. That means an applicant with heavy discretionary spending, large subscriptions, frequent buy now pay later use or high grocery and fuel costs may be assessed on a bigger expense load than the benchmark alone would suggest.
This is why two people on the same salary can be approved for very different amounts. The one with a leaner, more predictable spending pattern shows a larger surplus, and a larger surplus supports a larger loan. You can see how the repayment side of that equation works using the repayment calculators.
What counts as living costs
Lenders group expenses into categories such as groceries, transport, utilities, insurance, communications, childcare, education, medical costs and recreation. Existing debt repayments, including a mortgage or rent, credit cards and other loans, are assessed separately and often with a buffer. Rising insurance and financial services costs, one of the biggest contributors in the latest ABS data, feed straight into that expense load.
Because insurance premiums and mortgage interest have grown quickly, an applicant who was comfortably serviceable a year ago may find their surplus has narrowed even if their income has not changed. Our guide to household expenses and loan applications covers the category detail in more depth.
Steps to strengthen your position
There are practical ways to present the strongest possible budget. Reducing or closing unused credit cards and buy now pay later accounts lowers both the debt and the perceived spending capacity. Giving yourself two or three months of clean, consistent bank statements before applying helps, because lenders look at recent patterns. Cutting avoidable subscriptions and one off splurges in that window improves the picture.
It is also worth reviewing whether refinancing an existing loan could ease monthly cash flow before you add a car repayment. Our refinancing guide explains when that helps. And since lenders weigh expenses and benchmarks differently, comparing offers across the lender panel can find one whose assessment suits your household.
The bottom line for borrowers
Rising living costs do not automatically shrink your borrowing power, but they raise the benchmark lenders measure you against and narrow the surplus that supports a loan. Applying with realistic, well documented expenses, and trimming avoidable spending beforehand, gives you the best chance of an approval that matches the car you actually want. Comparing current car loan rates at the same time ensures the repayment fits the budget you have worked to clean up.
