In Australia, obtaining a car loan with a credit score of 620 and a history of bad credit can be challenging, but it is still possible. A 620 credit score is typically considered subprime, meaning you fall into a higher-risk category for lenders. However, there are several strategies and lenders that can help you secure financing even with less-than-perfect credit. Here's what you need to know to increase your chances of approval.
1. Understanding Your Credit Score
In Australia, credit scores generally range from 0 to 1,200. A score of 620 is on the lower end of the scale and is often considered poor or subprime. Lenders typically use this score, along with your financial history and other factors, to determine your eligibility for a loan. A lower score can lead to higher interest rates, larger deposits, or less favourable loan terms, but it doesn’t mean you won’t be able to get a car loan.
2. Specialist Lenders for Bad Credit
While traditional banks may be hesitant to approve a car loan for individuals with a 620 credit score, specialist lenders and car finance companies cater to people with bad credit. These lenders focus on factors such as your current income, employment stability, and ability to make loan repayments. If you have a stable income and a history of making payments on time, you may still qualify for a loan, even with a subprime credit score.
3. Secured Loans Can Help
Secured car loans are often an option for borrowers with a credit score of 620. With a secured loan, the car you are purchasing acts as collateral. This reduces the lender's risk, making them more likely to approve the loan despite your credit score. However, keep in mind that if you fail to make payments, the lender can repossess the car to recover the outstanding loan amount. Secured loans often come with better terms than unsecured loans, so it’s worth considering this option.
4. Consider a Larger Deposit
If you have a 620 credit score, offering a larger deposit can increase your chances of loan approval. A larger deposit lowers the overall loan amount and reduces the lender's risk. The more you can pay upfront, the more likely you are to receive better loan terms, including lower interest rates. It may not be necessary to put down a huge deposit, but even a small increase in your down payment can make a difference in getting approved.
5. Look for Flexible Loan Terms
Some lenders offer flexible loan terms for individuals with poor credit. These flexible loans may allow you to pay less in monthly repayments or defer payments for a period of time, making it easier to manage the loan. While this might come with higher interest rates or additional fees, it can be a good option if you're struggling with a 620 credit score and bad credit. Shop around to find the best loan terms that suit your current financial situation.
6. Work with a Guarantor
If you're having trouble securing a car loan with a 620 credit score, having a guarantor can improve your chances of approval. A guarantor is someone with a better credit score who agrees to take responsibility for the loan if you are unable to make payments. This adds a layer of security for the lender and can help you secure a car loan with more favorable terms, such as a lower interest rate. Be sure to discuss the arrangement thoroughly with your guarantor to ensure that everyone is aware of the responsibilities involved.
7. Use Online Car Loan Comparisons
Online car loan comparison tools can help you find the best deal for your financial situation. These platforms allow you to compare interest rates, repayment terms, and fees across various lenders in Australia. By using a comparison tool, you can see which lenders are more likely to approve loans for individuals with bad credit or a 620 credit score. This gives you an opportunity to find a lender that understands your financial position and is willing to offer terms that suit your needs.
8. Know the Impact of Your Credit Score
Although a 620 credit score may limit your options, it’s important to remember that your credit score isn’t the only factor lenders consider. Lenders also look at your income, employment status, debt-to-income ratio, and overall financial health. If you can demonstrate a stable income and an ability to repay the loan, it can go a long way in securing car finance.
9. Work on Improving Your Credit Score
While it may not help you immediately, working on improving your credit score can lead to better loan terms in the future. Make timely payments on any outstanding debts, avoid taking on new debt, and regularly check your credit report for errors. As your score improves, you’ll gain access to better financing options, including lower interest rates and more favorable loan terms.
Final Thoughts
Getting a car loan with a 620 credit score and poor credit can be difficult, but it’s not impossible. By exploring options such as specialist lenders, secured loans, larger deposits, and working with a guarantor, you can increase your chances of securing financing. Be sure to shop around, compare loan terms, and focus on your current ability to repay the loan. Over time, as you improve your financial health, you may be able to access more favorable loan options.
DISCLAIMER
The information provided on this website is general in nature only and has been prepared without considering your financial needs, circumstances and objectives and should NOT be construed as financial, taxation or legal advice. For more information, get in touch with our experienced partner brokers today.
