Short answer: Subprime car loans are offered by specialist lenders to people whose credit history rules them out with mainstream lenders, for example because of defaults, a past debt agreement or recent missed payments. They can get you into a car you genuinely need, but they usually cost more in interest and fees, and missed payments can lead to repossession. It pays to know the real cost before you sign.
Who subprime loans are for
Australian lenders don't use one universal cut-off score. Instead, they look at the detail on your credit file, including:
- Defaults. Debts of $150 or more that are 60+ days overdue. These stay on your file for five years, even once paid, though the file will show they're paid.
- Repayment history. Missed payments (14+ days late) show for two years.
- Debt agreements and bankruptcy. These stay on your credit file for years and permanently on the National Personal Insolvency Index.
- Recent enquiries. A cluster of applications in a short time.
Specialist lenders weigh these against your current income, how stable your job and address are, and how you're managing money now, as shown in your bank statements. Financial hardship arrangements recorded since July 2024 don't affect your credit score, although lenders may still ask about them.
The potential benefits
- Access to a car when you need one for work, family or medical appointments.
- A chance to rebuild your repayment history with on-time payments.
- The option to refinance later, once your file improves and older issues drop off.
The risks and costs
Example only: $20,000 over 5 years at 9% p.a. is about $415/month. At 16% p.a. it's about $486/month, roughly $4,270 more over the term, before fees. Actual rates depend on the lender and your profile. Other risks include:
- Fees and add-ons. Establishment fees, brokerage and optional insurance or warranties can add thousands to the loan. Ask for each one to be itemised.
- Negative equity. Long terms combined with an older car can mean you owe more than the car is worth.
- Repossession. If you fall behind, the lender must send a default notice giving you at least 30 days to catch up before it can repossess. See what happens if you default.
Be wary of anyone promising approval "regardless of credit" or pushing you towards a more expensive car than you asked for. Licensed lenders must still check that the loan is suitable and affordable for you.
Alternatives to consider first
- A cheaper car. A smaller loan is easier to get approved and easier to repay.
- Waiting. If a default or missed payments are close to dropping off your file, a few months can make a real difference.
- No Interest Loans (NILS). Eligible people on lower incomes may be able to borrow for car-related costs through Good Shepherd's program.
- Talking to a free financial counsellor. Call the National Debt Helpline on 1800 007 007, or visit Moneysmart.
Credit history holding you back? Tell us about your situation in about 60 seconds and a licensed broker will call you. No credit check to enquire.
Related guides
- Getting a car loan after hardship or default
- Car repossessed: what happens next
- Bad credit car finance
General information only. This isn't financial advice. Finance the Ride is a referral service and doesn't hold an Australian Credit Licence. Last reviewed September 2026.
