The RBA Financial Stability Review for October 2026, released on 1 October, finds that most Australian borrowers are coping with higher interest rates, even after the cash rate rose by 100 basis points this year. For anyone applying for a car loan or personal loan, the review is a useful read on how stretched household budgets are, how lenders are behaving and where the pressure points sit.
In short: the Reserve Bank of Australia says most households with loans have enough income and savings to keep up their repayments, arrears are low but edging up, and lending standards remain sound. Lower-income households and some small businesses are under the most pressure, and budgets have tightened as inflation and rates rose.
What the Financial Stability Review is
The Financial Stability Review is published by the RBA twice a year. It is not a rate decision. It is the RBA's assessment of how resilient the financial system is, covering households, businesses, banks, non-bank lenders and global risks. The October 2026 edition follows the RBA's 29 September decision to lift the cash rate target by 25 basis points to 4.60%. The next Monetary Policy Board meeting is on 2 and 3 November.
The RBA's headline view is that "Australia's financial system has a good degree of resilience", but that global and operational risks, including geopolitical tensions, artificial intelligence and disruptions at critical service providers, keep building.
How household budgets are holding up
The review is candid that budgets have tightened in 2026. According to the households chapter:
- Real household disposable income per person declined slightly over the first half of 2026, mostly because of higher inflation and interest rate increases.
- Lower-income households, many of whom rent, are more likely to feel stress because essential expenses take up a larger share of their income.
- Enquiries to the National Debt Helpline increased modestly over the first half of 2026.
- Around 2% of variable-rate owner-occupier borrowers are estimated to have a cash flow shortfall, meaning their income does not cover scheduled mortgage repayments and essential expenses.
- Most borrowers in that shortfall are estimated to have enough savings to cover it for at least six months if they cut spending back to essentials.
For a car loan applicant, the takeaway is that the living-cost side of a loan application matters more than it did a year ago. When essential expenses rise faster than income, the amount left over to service a new loan shrinks, and that is exactly what lenders measure. Our guide to living costs and car loan serviceability explains how expenses feed into that calculation.
Arrears and hardship are rising, but from a low base
The RBA reports that the share of housing loans more than three months behind on repayments has increased a little this year, but remains around pre-pandemic levels. The share of loans in formal hardship arrangements has also increased while remaining low.
The review also notes that borrowers in a cash flow shortfall have been making difficult adjustments, such as cutting back to mostly essential spending, selling assets and working additional hours. If you are already finding repayments hard, it is worth knowing that hardship arrangements exist for a reason. Our explainer on car loan hardship help covers how to ask your lender for one.
Savings buffers and home equity
Two things are doing much of the work in keeping borrowers afloat, according to the RBA:
- Savings buffers. The median mortgage holder could cover more than a year of scheduled repayments at current interest rates from money held in offset and redraw accounts. The RBA has not seen a meaningful increase in the share of borrowers persistently drawing those buffers down.
- Equity. Housing prices have declined in recent months, but fewer than 1% of borrowers are estimated to owe more than their property is worth. Even if prices fell a further 20%, the RBA estimates only around 5% of mortgages would be in negative equity.
Housing equity affects car buyers more than it might seem. Some people fund a car through their home loan redraw or a top-up, which changes the cost of the car over time. Our guide to using your mortgage to buy a car compares that approach with a dedicated car loan.
Why lenders keep assessing at higher rates
One detail in the review explains why approvals can feel tighter than the cash rate alone suggests. For home loans, the Australian Prudential Regulation Authority (APRA) requires lenders to assess whether a borrower could repay at an interest rate 3 percentage points above the loan rate. That buffer was raised from 2.5 to 3 percentage points in late 2021. The RBA says this is one reason recent borrowers are better placed than those who borrowed during the pandemic.
The RBA also notes the share of new high debt-to-income lending remains well below APRA's 20% limit, and that riskier lending is contained.
That buffer is a home loan rule, not a car loan rule. Car loan and personal loan lenders set their own serviceability tests. The common thread is that lenders look at your income, your existing debts and your living expenses. Any home loan repayment you already carry counts as an existing commitment when a car lender works out your borrowing power.
Competition among lenders is still strong
For borrowers, one of the more encouraging lines in the review is that lending competition among bank and non-bank lenders remains strong, while lending standards stay sound. The RBA says non-bank lenders' risks to the overall system are contained by their relatively small size.
Strong competition is a good reason to compare before you commit. Rates, fees and policies differ between lenders, and the advertised rate is only part of the cost. You can compare current car loan rates and read our reviews of individual lenders, with the comparison rate shown alongside the headline rate.
What the review says about small businesses
If you buy a vehicle through an ABN, the business chapter is relevant. The RBA says most businesses entered 2026 with strong balance sheets, but smaller businesses and those in energy-intensive or cyclical industries such as transport, hospitality and construction are more vulnerable to cost pressures. Liaison suggests most lenders have not materially changed their willingness to lend to businesses this year, apart from some small reductions in appetite for new lending to the transport industry.
The RBA also notes that rate rises tend to flow through faster to smaller businesses, partly because many borrow on variable rates secured against a home. Automation of loan approvals has improved access to credit for some smaller businesses and self-employed borrowers.
The RBA's stress test scenario
The review includes a deliberately severe scenario in which unemployment rises to 6.3%, inflation rises to 7% and the cash rate reaches 5.6%. Under those assumptions, the share of mortgage holders at higher risk of default is estimated to rise to around 5%, only a little above the 2023 peak. This is a stress test, not a forecast, but it shows how the RBA thinks about the downside.
What it means if you are applying for a car loan
The review does not change any lender's rates or policies on its own. It does describe the environment your application is assessed in. Some practical points to consider:
- Check your budget at a higher rate. Run your repayments through our loan calculators at a rate a little above the quote, so a further rise would not break your budget.
- Keep your savings visible. The RBA puts a lot of weight on buffers. Lenders reviewing your bank statements will see them too. Our guide to what lenders check in bank statements explains what they look for.
- Review your existing loan. If your current car loan rate has moved up with the market, compare it against current offers. Our refinance page explains how switching works and when the fees outweigh the savings.
- Watch 2 and 3 November. The next RBA decision will set the tone for variable rates heading into summer.
Sources: RBA Financial Stability Review, October 2026, and RBA Monetary Policy Board statement, 29 September 2026, both checked 7 October 2026.
