Car Loans For Bad Credit

If you’ve previously been refused car finance from your bank or from a dealership, it doesn’t mean that you won’t be able to get a car loan to buy the car that you really need.

With car loans for bad credit, your past doesn’t have to dictate your future. You can choose to turn your bad credit history around, and the first place to start is by understanding how your credit score is determined, and the 5 steps you’ll need to take to apply for a bad credit car loan.

Car loans for bad credit - passing the lender assessment:

When a bank does an assessment of your financial position to decide whether you qualify for the car loan that you want, they’ll check your credit score, and they’ll also look at the other financial commitments that you currently have to determine whether you can comfortably afford the car loan you’d like to get.

Once they form a complete picture of your financial situation, they’ll decide whether to take the risk of lending you the money.

What if I have missed payments or discharged bankruptcy?

If you have missed repayments, serious defaults or discharged bankruptcy the risk that you’ll miss a payment in the future is perceived to be a bit higher than if you had a perfect credit file.

This could mean your application is declined, or it could mean that you’ll pay a higher interest rate. When you have missed payments, it’s important that you understand how your interest rate is determined so that you can take all the possible steps to get the lowest rate available.

You can find out more about how lenders determine interest rates and assess credit applications here.

5 tips to improving your chance of bad credit loan approval:

  1. Cancel Unused credit cards

  2. This will eliminate the risk that you’ll use them again, as well as decreasing your total liabilities from the lender’s point of view. With fewer financial responsibilities against your name, you’ll have a greater borrowing capacity. This means it’s more likely you’ll be approved for the car you want rather than having to settle for something cheaper.

    It also reduces the chance of fraud on one of these cards affecting your credit score.

  3. Pay bills on time

  4. If you know you’ve missed payments, you can pay them as soon as you can and then wait for the payment to show on your credit file. This will become more important as NAB leads the way to more major lenders adopting the positive credit reporting system in Australia.

  5. Stop applying for credit

  6. Each time you apply for a credit card or loan, the credit institution or lender will check your credit file. There’s 3 easy ways you can prevent this from affecting you:

    • Work out how much you can realistically afford before you start the application. This will mean you won’t be rejected outright because of a serviceability issue - where you don’t make enough money to cover the loan you’ve applied for as well as all your other expenses.
    • Know what’s on your credit file. If you have missed payments, serious credit defaults, a Part 9 agreement or bankruptcy, you can research lenders who specialise in these areas and avoid outright rejection from the major banks.
    • Use a car loan broker. They’ll be able to perform a soft credit check to match you with suitable lenders who will actually consider your application, and they’ll tell you what the likelihood of approval will be, based on their daily experience of matching people to the car loans they best fit.

  7. Have a permanent address and consider a joint application

  8. If you’ve got stable residence and employment, even if you’re casually employed, it shows lenders that you’re not going to suddenly leave unpaid debts behind you, and it’ll make it easier to get the loan you want. Lenders will generally look for 12 months stable residency - if you’re able to stay in the same home for longer that’s great.

    If you live at the same address as your partner and they are able to undertake a joint application for the car loan with you, you’re also more likely to be approved. This is a good idea especially where you will both use or benefit from the car.

  9. Save a 10% deposit

  10. Proving that you’re able to save up a decent amount shows that you can manage your finances and meet regular loan payments. It also means you won’t have to borrow as much, so you’ll pay less interest than if you had to borrow the full purchase price of the car.

  11. Get a secured car loan

  12. With a secured car loan, if you can’t make the loan repayments the lender will simply repossess the car to clear the unpaid loan debt. They’ll register security over the car with the PPSR. It does mean you’ll have to buy a fairly new car (5-7 years old) - but this should work to be a good deal in the long run by covering your maintenance costs.

  13. Spend less on your car

  14. Get a smaller loan on a practical car - you can upgrade once your credit history is squeaky clean, and you’ll demonstrate that you’re making smart financial decisions moving forwards with financial obligations you can realistically nail.

How To Apply For A Car Loan For Bad Credit

If you’re ready to find out more about whether you’ll qualify for a car loan for bad credit, read on here.

For information on the new credit reporting system, bankruptcy, part 9 debt agreements, and how this affects your ability to get a bad credit car loan, there’s lots more to learn in our information centre.

If you’d like to get a free credit check to see where you stand exactly, just fill out our free credit check form and we’ll be in touch with you very soon with your results.

To talk to someone about your options regarding a car loan for bad credit, call 1300 722 210, and one of our car loan brokers will be able to give you information and quotes relating to your specific situation.

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