Getting a Car Loan with a 620 Credit Score

A credit score of 620 is considered to be in the "fair" range, which means getting approved for a car loan in Australia is possible but may come with higher interest rates or stricter loan conditions. While a higher credit score generally increases the chances of securing better terms, a 620 credit score still offers some room to work with. Here’s how you can improve your chances of getting approved for car finance in Australia with a 620 credit score.

1. Consider a Secured Loan

One of the best options for getting a car loan with a 620 credit score is a secured loan. With a secured loan, the car you are purchasing acts as collateral. If you default on the loan, the lender can repossess the car to recover their funds. Because the loan is backed by the vehicle, lenders are more likely to approve the loan, even if your credit score isn’t stellar. While the interest rates on secured loans may still be higher than those for borrowers with excellent credit, they generally come with more favourable terms than unsecured loans.

2. Look for Specialist Lenders

In Australia, many lenders specialise in offering car loans to individuals with average or poor credit scores. These lenders are more likely to be flexible and offer car loans to people with a 620 credit score. Specialist lenders understand that a credit score of 620 doesn’t necessarily reflect your ability to make repayments, so they often consider other factors like your income, employment history, and recent financial behaviour. However, be prepared for higher interest rates, as lenders tend to compensate for the higher perceived risk.

3. Consider a Larger Deposit

Offering a larger deposit can significantly increase your chances of getting approved for a car loan, even with a 620 credit score. A bigger deposit reduces the amount you need to borrow, making the loan less risky for the lender. While a 620 credit score may not automatically guarantee a loan, a deposit of 20% or more can demonstrate to lenders that you are financially responsible and invested in the loan. It may also help you secure better loan terms and a lower interest rate.

4. Dealership Financing

Some car dealerships in Australia offer financing options directly to buyers, including those with a 620 credit score. Dealership financing can be more flexible than traditional loans from banks or credit unions, and many dealerships are willing to work with individuals who have average credit. However, dealership loans often come with higher interest rates, so it’s important to carefully evaluate the loan terms and compare them to offers from other lenders. Make sure you understand the total cost of the loan before agreeing to dealership financing.

5. Check Your Credit Report for Errors

Before applying for a car loan, it’s important to check your credit report for any errors or inaccuracies. Sometimes, mistakes can lower your credit score, even if you’ve been making timely payments. You’re entitled to request a free copy of your credit report from agencies like Equifax and Experian in Australia. If you find any discrepancies, dispute them with the credit bureau to ensure your report accurately reflects your financial history. Correcting errors on your credit report could potentially improve your score and increase your chances of loan approval.

6. Consider a Co-Signer

If you’re having trouble securing a car loan with a 620 credit score, you might consider asking someone with better credit to co-sign the loan. A co-signer agrees to take responsibility for the loan if you fail to make payments, which reduces the lender’s risk. Having a co-signer can significantly improve your chances of getting approved for the loan, and may even help you secure more favourable terms and a lower interest rate. However, it’s important to remember that if you default, your co-signer will be held financially responsible.

7. Shop Around for the Best Deals

It’s essential to shop around and compare offers from multiple lenders before committing to a car loan. Different lenders may have different approval criteria and interest rates, so comparing options can help you find the best deal. Online car loan comparison platforms can help streamline this process by allowing you to easily compare rates, fees, and loan terms from a range of lenders. By taking the time to explore various options, you can secure the most affordable and favourable loan for your situation.

8. Improve Your Credit Score Over Time

While a 620 credit score may be sufficient for car financing, improving your credit score over time will open the door to better loan options. Focus on paying off existing debts, making on-time payments, and reducing your credit utilisation ratio. As your credit score improves, you’ll be able to qualify for loans with lower interest rates and better terms. Although improving your credit score takes time, it’s a worthwhile investment if you plan to make larger purchases in the future.

Conclusion

Getting a car loan with a 620 credit score in Australia is possible, though it may come with higher interest rates or stricter terms. By considering options like secured loans, specialist lenders, and offering a larger deposit, you can improve your chances of getting approved. Always compare loan offers and carefully review the terms before making a commitment. Additionally, working to improve your credit score over time will help you qualify for better financing options in the future. With these strategies in mind, you’ll be well-equipped to secure a car loan that suits your financial situation.

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.