Car Loans for Bad Credit in Australia
Getting a low interest car loan isn’t always easy, especially when you have a weaker credit history than other borrowers.
While you might not be able to access the cheapest car loan rates due to your credit score, car loans for bad credit are still out there. This article will explain how they work and where to get them.
What is a bad credit car loan?
This loan type is intended for people with an inconsistent credit history that has led to a low credit score. Having bad credit can make it more difficult to get financing or refinancing options, but a car is an absolute necessity for many of us.
Some borrowers with weak credit will try to seek out guaranteed car finance: no credit check, no deposit. Unfortunately, no lender will approve 100% of the applications that they receive, so it is a matter of finding the right ones for you. This is why car loans for bad credit can be an important tool.
How do car loans for bad credit work?
Bad credit car finance is set up similarly to other car finance, but they usually have extra safeguards for the lender. These include higher interest rates and fees as well as requiring security (usually the car being purchased). Apart from that, car loans for bad credit look similar to traditional car loans. The borrower gets a lump sum to be used on a car purchase and then has between one and seven years to repay the loan plus interest through monthly repayments.
Who could benefit from a bad credit car loan?
Many types of individuals may be interested in no credit check car loans or other bad credit finance options for their vehicle. These are some popular reasons for this:
- Engaged in a Part IX debt agreement due to being at risk of bankruptcy
- Can’t provide full documentation of their financial history
- Haven’t had the opportunity to build up a credit score
- Classified as a temporary Australian resident
- Still have loan defaults on their credit history, which linger for up to five years
- Have no credit history which makes them an unknown quantity
- Self-employed with non-traditional wage structure
- Had a bankruptcy discharge and were released from legal liability for their debt
How do you make your car loans the cheapest possible?
Some lenders advertising no credit check car finance are eager to take advantage of vulnerable customers. There are a few key things to stay on top of in order to avoid being misled:
Interest rate and fees
Car loans for people with bad credit often come with steep rates. It’s important to look at the comparison rate, which includes both the interest rate and the fees.
Interest rate type
You can have a fixed interest rate that will stay the same for a set period, or a variable interest rate that can be influenced by external factors like market conditions.
The duration of the loan directly impacts the interest paid. A longer-term loan means smaller payments each month, but you may end up paying more overall.
A deposit demonstrates your commitment and reduces the risk for the lender. Paying a larger deposit will encourage lenders to partner with you and give you better rates.
Smaller loan amounts
If you need to get bad credit finance, taking out a smaller loan will help you save on interest. A larger principal amount means more interest to pay.
Some lenders may allow you to make extra payments with no penalty, which saves you money on interest. You can then redraw those payments later if needed.
What bad credit car loans are available?
Not every loan is structured the same way, since loans can come from banks, credit unions, car dealerships, or even online lenders. The main loan categories are:
|Loan type||Key features|
|Traditional||Conventional loan setup, with higher interest rates than ordinary|
|Specialist||Specifically tailored towards high-risk borrowers|
|Dealer finance||Dealership-sourced loans that often have a deposit upfront|
|Joint application||Two borrowers apply together in order to spread out the risk|
|Guarantor||Loan backed by a friend or family member with stronger credit|
How do lenders determine eligibility for bad credit car finance?
Bad credit car loans with guaranteed approval are hard to find, but they’re out there. These are the main questions loan providers may ask before issuing bad credit rating car loans:
- Credit history: What happened that made your credit score lower than ideal? Are you on an upward trend?
- Loan amount: Are you only borrowing what you need, or are you taking out unnecessary extra debt?
- Income: Can you reasonably guarantee that you’ll have a stable income and will be able to pay off the loan?
- Other financial circumstances: What other debt do you currently have? What do your monthly expenses look like?
How can I get car loans with bad credit?
Making your car loan the cheapest it can possibly be is a major cost-saver. To increase your odds of accessing low interest car loans, follow these steps:
Pay bills on time, and pay off overdue bills as soon as possible to demonstrate financial responsibility. Consider using a budget app to help stay organized.
Hold onto steady employment to show that you have a reliable income for making your payments.
Avoid submitting loan applications that you know are likely to be rejected, since the hard credit check can hurt your credit.
Consolidate high-interest debt into a single, lower-cost loan to reduce the amount of interest you pay.
Keep a stable address so that lenders know that you can be reached easily at a permanent and registered address.
Bad credit car loans FAQ
Key points of car loans for bad credit
Every car buyer would like to have their car loans the cheapest they can possibly get. A short or weak credit history makes getting a low rate car loan challenging, but there are still several options available for bad credit car finance. Additionally, there are many strategies to get your credit score moving in the right direction before applying. Following these bad credit car loan tips can help you get on your way to financial stability.