Securing car finance with bad credit in Australia can seem like an overwhelming challenge, but it’s not impossible. While traditional lenders like banks may be hesitant to approve loans for those with poor credit histories, there are still plenty of options available. Understanding the process and knowing where to look can increase your chances of approval. Here’s a guide to help you navigate the process of getting car finance with bad credit.
1. Know Your Credit Score
Before applying for car finance, it’s important to understand where you stand with your credit score. In Australia, credit scores typically range from 0 to 1,200, with scores under 600 generally considered poor or bad. You can check your score for free through major credit reporting agencies like Equifax, Experian, or illion. This will give you a clear picture of your financial situation and help you determine which loan options are available to you.
2. Specialist Lenders for Bad Credit
While big banks and traditional financial institutions may be less likely to approve loans for people with bad credit, there are specialist lenders in Australia who focus specifically on individuals with poor credit histories. These lenders understand that credit issues don’t always reflect a borrower’s ability to repay. They may offer more flexible terms than traditional lenders, though they might charge higher interest rates to offset the risk. Shopping around and considering specialist lenders can improve your chances of getting approved for car finance.
3. Secured Car Loans
A secured loan is one of the best options for individuals with bad credit. In a secured car loan, the car you’re purchasing serves as collateral. This means the lender has security in case you are unable to repay the loan, which makes them more likely to approve the application, even with bad credit. Secured loans generally come with lower interest rates compared to unsecured loans, making them a more affordable option for those with poor credit histories.
4. Consider a Guarantor
If your credit score is low, having a guarantor can improve your chances of being approved for car finance. A guarantor is someone, typically a family member or close friend, 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 increase your chances of approval. Additionally, a guarantor with a strong credit history may help you secure more favourable loan terms, including a lower interest rate.
5. Save for a Larger Deposit
Another way to increase your chances of securing car finance with bad credit is by saving for a larger deposit. The more money you can put down upfront, the less you’ll need to borrow, which reduces the lender’s risk. A larger deposit shows that you are financially responsible and serious about the loan, which may make the lender more willing to approve your application. A deposit of at least 20% is ideal for improving your chances.
6. Be Realistic About Loan Terms
When applying for car finance with bad credit, it’s important to be realistic about the terms you can afford. You may be offered higher interest rates or shorter loan terms due to your credit history. While it might be tempting to stretch out the loan term to reduce monthly repayments, be cautious. Longer loan terms can result in higher overall interest payments. Instead, focus on finding a loan with terms that you can comfortably manage within your budget.
7. Improve Your Credit Score Over Time
Although it may not provide immediate relief, working to improve your credit score over time will increase your chances of securing better car finance options in the future. Steps like paying off outstanding debts, reducing your credit card balances, and ensuring timely payments can gradually improve your score. Even small improvements can make a significant difference when applying for loans and help you qualify for better rates and terms in the long run.
8. Consider a Co-Signer
Another option for people with bad credit is to apply for a loan with a co-signer. A co-signer is someone who agrees to share the responsibility for the loan. Having a co-signer with good credit can improve your chances of approval and may even help you secure better loan terms. However, this means the co-signer is equally responsible for the loan, and any missed payments could affect their credit score as well.
Conclusion
Yes, it is possible to get car finance with bad credit in Australia, though it may require some effort and strategic planning. By understanding your credit score, exploring specialist lenders, considering secured loans, and potentially involving a guarantor or co-signer, you can increase your chances of approval. While bad credit may result in higher interest rates, securing car finance is achievable if you take the right steps.
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.
