In Australia, a credit score of 650 is considered a fair score. While it’s not considered excellent, it also isn’t the lowest range. A 650 credit score can potentially open doors to car financing, but it may not always guarantee the best terms or the lowest interest rates. Understanding how your credit score impacts car loan applications and exploring available options can help you make an informed decision.
Understanding Your 650 Credit Score
In Australia, credit scores typically range from 0 to 1,000. A score of 650 falls within the "fair" range, which is between 600 and 699. A score in this range suggests that you are more likely to be approved for a car loan than someone with poor credit, but you may still face higher interest rates and less favorable terms compared to someone with a higher score. Lenders view individuals with fair credit as moderate-risk borrowers, meaning they’ll assess other factors such as income, employment history, and the type of loan you’re applying for.
Loan Options for a 650 Credit Score
While a 650 credit score doesn’t guarantee immediate approval for a car loan, it certainly improves your chances. There are several loan options available for those with fair credit, depending on your circumstances.
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Secured Car Loans
Secured car loans are often a good option for borrowers with fair credit. In a secured loan, the vehicle itself acts as collateral, meaning if you fail to repay, the lender can repossess the car. Because the lender has less risk with secured loans, you may receive more favorable terms and lower interest rates, even with a 650 credit score. -
Unsecured Car Loans
An unsecured loan doesn’t require collateral, but it typically comes with higher interest rates. Lenders view these loans as riskier since there’s no asset to reclaim if you default. While it may be harder to get an unsecured loan with a 650 credit score, it is still possible with a strong income and stable employment history. -
Personal Loans
If you're unable to secure a traditional car loan, you might consider a personal loan. Some lenders offer personal loans with fair credit, which can be used to purchase a vehicle. These loans are often unsecured, meaning they come with higher interest rates, but they may be a suitable option for those who need more flexibility.
Steps to Improve Your Chances of Approval
If you have a 650 credit score and want to increase your chances of getting approved for a car loan, consider taking the following steps:
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Save for a Larger Deposit
A larger deposit reduces the loan amount, which can make lenders more willing to approve your application. The bigger your deposit, the less risky you appear to lenders, potentially leading to better terms. -
Consider a Co-Signer
If possible, consider adding a co-signer with good credit to your loan application. A co-signer is someone who agrees to take responsibility for the loan if you fail to make payments. This can help reassure the lender and increase your chances of approval. -
Shop Around
Not all lenders have the same requirements, and some may be more willing to work with borrowers who have fair credit. Shop around and compare loan terms, interest rates, and fees to find the best deal. Online comparison websites can make it easier to evaluate options from various lenders. -
Provide Proof of Income and Stability
Lenders are more likely to approve your car loan application if they see that you have a stable income and employment history. Providing proof of income, such as payslips or tax returns, can demonstrate your ability to repay the loan and improve your chances of approval.
Interest Rates and Loan Terms
With a 650 credit score, you may still face higher interest rates than those with excellent credit. It’s important to budget for this and ensure that the loan terms align with your financial situation. When shopping for a loan, pay close attention to the interest rate, loan term, and any additional fees. A longer loan term may result in smaller monthly repayments but could also mean paying more in interest over time.
Alternatives to Traditional Car Financing
If you find it difficult to get approved for a traditional car loan with a 650 credit score, consider these alternatives:
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Buy Here, Pay Here Dealerships
Some car dealerships offer in-house financing to buyers with less-than-perfect credit. While these loans may come with higher interest rates, they can be a viable option for those with a fair credit score. -
Credit Unions
Credit unions may offer better rates and more flexible terms for borrowers with fair credit. Consider checking with local credit unions to see if they have auto loan products that suit your needs. -
Online Lenders
Online lenders often have more lenient approval criteria compared to traditional banks, making them a good option for individuals with fair credit. Be sure to research online lenders carefully and check their reputation before committing to a loan.
Conclusion
A 650 credit score in Australia puts you in a good position to qualify for car financing, though it may not offer the best interest rates. By exploring secured car loans, shopping around for the best offers, saving for a larger deposit, or considering a co-signer, you can increase your chances of getting approved for a car loan. While interest rates may be higher than those for borrowers with excellent credit, a 650 score doesn’t mean you’re shut out of car financing options. With careful planning and research, you can find a loan that works for you and drive away in your new vehicle.
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.
