As the changes to credit reporting in Australia are gradually adopted by the banks and lenders, more people will fall into the sub-prime credit sector.
This is because instead of simply recording serious credit defaults, the new credit reporting system will also show late payments on loans. If you make a payment more than 14 days after the due date, this will show under the new reporting system.
As these changes are implemented by more banks and lenders, it’s anticipated that around ¼ of Australians will be affected.
So what will this mean next time you apply for a car loan? Will you have to resort to relying on friends and public transport to get around?
Even if you have some late payments on your credit history, chances are you can still get the car loan that you need to get your own independent transport.
You will probably need to pay a slightly higher interest rate than if you hadn’t any late payments or defaults, but with careful research and planning your new car loan can work towards repairing that poor credit history.
To help you with the process of choosing a bad credit car loan, I’ve put together the steps that you’ll need to take to have a full understanding of your credit situation and what it means moving forwards to your next car loan.
Most of the major credit agencies will provide a free credit check, such as Veda, Experian or Dun and Bradstreet. We also offer a free credit check service you can use to get your credit file quickly.
Once you’ve got the report, check to see that it’s in order and there aren’t any mistakes. If there’s anything on the report that you know isn’t correct, one positive thing about the new credit reporting system is that it’s easier and quicker to get mistakes fixed up.
If you do have a missed payment or default, it’s a good idea to find out about some of the alternative lenders that you might be able to use.
An alternative lender understands that even if you’re careful with your finances and you have a healthy financial outlook, sometimes payments are made late for reasons beyond your control.
They’ll look at more than just your credit score, considering your overall financial conduct, residential and job stability, and may be able to offer you better terms on a bad credit car loan than a traditional bank will.
Getting professional advice at this point can be a really good idea. A financial advisor will help you decide whether taking out a car loan right now is a smart move for you - it might be necessary to help you keep a stable job.
On the other hand, it might be better to get a cheap bomb for a short time to keep you moving while you repair your credit score, before taking out a bad credit car loan.
If you decide to move forward with a bad credit car loan, you might want to speak to a car loan broker to find out about the range of car loan interest rates and loan features that will help you get your credit file back into tip top shape.
It’s easy to fall into the trap of simply considering the monthly payment that you’ll make when you’re working out if you can afford a particular bad credit car loan. When you’re getting a bad credit car loan, it’s important to make sure that you can afford to meet the loan payments, but it’s also important that you don’t take on too large a financial commitment.
You’ll want to buy a car you can afford and that does the things you need it to, without creating any unnecessary financial pressure. This might mean going for a basic model, or a second hand vehicle with a shorter loan term.
The main reason to keep the loan term short is that you’ll pay less interest - keeping your financial commitment manageable and freeing up cash for other things you need. You’ll pay off the car quicker, and save a few thousand in interest payments.
Other loan features to look for are the ability to make extra repayments when you have cash coming in, or to pay out the car loan early. A car loan broker can talk you through the different options that are available.
If you meet every repayment on your bad credit car loan, after 2 years, your repayment history that’s visible to the lenders will not show missed payments under the new credit reporting system.
This is the perfect opportunity to refinance your bad credit car loan into a good credit car loan and take advantage of lower interest rates for the remainder of the loan term.
When you get a car loan refinance quote, make sure that the amount you’ll save on interest is more than the fees for refinancing the car loan so you’re ahead in the long run.
If you want to find out more information about your credit history and how you can get a bad credit car loan, you can find more information and get in touch here.