In Australia, securing car finance with poor credit can be a challenging experience, but it is not impossible. If you have a stable income but a less-than-ideal credit score, you still have options available. Lenders often view stable income as a strong indication that you are able to make regular repayments, which can increase your chances of approval. Here’s a guide on how to secure car finance in Australia with poor credit but a stable income.
1. Understand Your Credit Score
In Australia, credit scores range from 0 to 1,200, and anything below 550 is generally considered poor credit. Lenders typically assess your credit score to determine how risky lending to you might be. However, if your credit score is low, but you have a reliable income, this can work in your favour. While your credit history may indicate financial struggles in the past, a steady income shows that you are now in a position to make regular loan repayments.
2. Consider Specialist Lenders
Traditional banks may be hesitant to approve loans for individuals with poor credit, even if they have a stable income. However, specialist lenders in Australia are more likely to consider applications from borrowers with bad credit, as they understand that a poor score doesn’t always reflect current financial stability. These lenders often specialise in offering car loans to people with less-than-perfect credit histories. While interest rates may be higher, specialist lenders can provide a more flexible approach to car finance.
3. Apply for a Secured Car Loan
If you have poor credit but a steady income, applying for a secured car loan can improve your chances of approval. A secured loan requires you to offer the car you are purchasing as collateral. Because the loan is backed by an asset, lenders view it as less risky. If you fail to repay the loan, the lender can repossess the car to recover the balance. Secured loans are generally easier to qualify for compared to unsecured loans, especially if your credit history is less than ideal.
4. Larger Deposit Can Help
Offering a larger deposit is another way to increase your chances of securing car finance. A sizable upfront payment reduces the amount you need to borrow, making you less of a risk to lenders. If you can afford to put down a 20% or 30% deposit, this can not only help with approval but might also result in lower interest rates. A larger deposit shows the lender that you are financially responsible and capable of saving, further strengthening your application.
5. Consider a Guarantor
If your credit score is low but you have a steady income, you may want to consider applying for the loan with a guarantor. A guarantor is someone who agrees to be responsible for the loan if you fail to make payments. Typically, a guarantor will have a better credit score and a stable income, which can reassure the lender and increase your chances of approval. Having a guarantor can also help secure a better interest rate, as the lender has an additional layer of protection.
6. Shop Around for the Best Deal
When you have poor credit but a stable income, it’s crucial to compare car loan offers from different lenders. Lenders have different criteria for approving loans, and the terms and interest rates can vary significantly. Specialist lenders, online lenders, and even car dealerships that offer in-house finance may be more willing to approve your loan application. Use online comparison tools to explore your options and find the most competitive loan terms that suit your budget.
7. Be Prepared for Higher Interest Rates
It’s important to note that with poor credit, even with a stable income, your loan will likely come with a higher interest rate. Lenders charge higher rates to compensate for the perceived risk of lending to someone with a poor credit history. Although this can increase the total cost of the loan, it’s important to shop around and find the best deal possible. Over time, making timely repayments on your car loan will help improve your credit score, which could lead to better terms in the future.
8. Make Sure You Can Afford the Repayments
Before applying for car finance, carefully assess your budget to ensure you can afford the monthly repayments. A stable income is an asset when applying for car finance, but lenders will still look at your overall financial situation. Be sure to take into account your other monthly expenses and ensure that the car loan repayments fit comfortably within your budget. Defaulting on the loan could further damage your credit and make future financing more difficult.
Conclusion
Securing car finance in Australia with poor credit but a stable income is possible, especially if you explore options like specialist lenders, secured loans, and larger deposits. While you may face higher interest rates, a steady income gives lenders confidence in your ability to make regular repayments. By carefully shopping around for the best deal and ensuring that you can comfortably afford the loan, you can improve your chances of getting approved for the car loan you need.
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.
