If you've defaulted on payments in the past, it can make securing car finance more challenging, especially in Australia where your credit history plays a significant role in loan approvals. A default occurs when you miss a payment on a credit account, which gets recorded on your credit file and can remain there for up to five years. While this can lower your credit score and make lenders hesitant to approve your application, it doesn’t mean you’re completely out of options. In fact, one of the best ways to secure car finance after a default is to apply through a broker, rather than applying directly to a lender.
- Understanding the Impact of Defaults on Car Finance Applications
Defaults are considered a sign of financial instability, which makes lenders more cautious when approving a loan application. If you’ve defaulted on previous payments, you are deemed a higher risk borrower, and traditional lenders such as banks and credit unions may either reject your application outright or offer you less favourable terms, including higher interest rates or larger deposit requirements.
However, not all lenders operate in the same way. There are lenders who specialize in offering car loans to individuals with poor credit or defaults, making it possible for you to get the finance you need even after a financial setback. The challenge is identifying these lenders and navigating the loan application process efficiently.
- Why Use a Broker When You Have Defaults?
While it may seem quicker to apply directly to a lender, working with a broker can actually increase your chances of approval and ensure you get a better deal. Brokers have access to a wide range of lenders, including those who focus on providing loans to borrowers with defaults on their credit file. They can help match your application with the most suitable lender who may be more flexible with their lending criteria.
By using a broker, you avoid the risk of multiple loan applications, which can negatively impact your credit score. Brokers also have a deep understanding of the car finance market, allowing them to help you secure better loan terms, such as lower interest rates, or negotiate repayment schedules that suit your financial situation.
- Improving Your Chances of Approval
If you’ve defaulted on payments and need car finance, there are steps you can take to improve your chances of getting approved:
- Offer a Larger Deposit: A larger deposit reduces the loan amount and lowers the lender’s risk, making them more likely to approve your application.
- Demonstrate Stable Income: Lenders want assurance that you can afford the repayments. Providing proof of steady income will strengthen your application.
- Consider a Co-Signer: If possible, having a co-signer with a stronger credit history can improve your chances of approval and potentially lower your interest rates.
- Secured vs. Unsecured Loans
When applying for car finance with a default on your record, you may be offered secured or unsecured loan options. A secured loan requires the car itself to be used as collateral, which reduces the lender’s risk and increases your chances of approval. On the other hand, unsecured loans don’t require collateral but often come with higher interest rates and more stringent criteria.
Conclusion
Having a default on your credit file doesn’t automatically disqualify you from securing car finance in Australia, but it can complicate the process. By using a broker, you can streamline your loan application, find lenders willing to work with you, and secure more favourable terms. Brokers have access to a wider range of lenders, reducing the risk of rejection and increasing your chances of obtaining the finance you need, even if you’ve defaulted in the past.
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.
