Can I get a car loan with bad credit?

Financing a car when you have bad credit can seem like an uphill struggle at times. But don’t let having bad credit drive you to despair. There might be financing options available to you even if your credit rating isn’t squeaky clean. 

Where can I get a car loan when I have bad credit?

The lenders you can approach for a car loan, and the interest rate you’ll be offered, may vary depending on your credit score and other factors. One option is to approach a lender for a personalised rate based on your unique circumstances. There are several lenders who specialise in bad credit car loans.

Unfortunately, having a bad credit rating means that you are more of a risk to lenders, which often results in higher car loan interest rates. However, you may find that some car loans have lower interest rates than some personal loans for bad credit, as your loan can often be secured against the car.

What is a secured car loan?

A secured car loan  uses your vehicle as collateral. This means that if you default on your repayments, the lender can repossess and sell your car to help recover your costs. This reduces your financial risk to lenders and allows them to reduce their interest rates, compared to if the loan was unsecured.

You can also secure car loans through a guarantor.

What is a guarantor car loan?

Guarantor loans for cars are secured by someone who guarantees the repayments for you, such as a parent, relative or close friend. Having a guarantor may help your application to be approved, plus you may be able to secure a loan with a lower rate.

Guarantor car loans might be particularly useful for young people and students, who may not have spent much time being financially independent and may have a low credit score due to having little credit history. Checking your credit score is still important, as even small things like paying your phone bill can affect your credit rating.

Some students may even have no credit score, which can in many ways hinder you just as much as having bad credit. While your score isn’t bad, it also isn’t good, and you are a wild card to lenders.

Can I get a car loan if I’m on Centrelink payments?

Loans for people on Centrelink payments, for example car loans for single parents, or car loans for pensioners, may be available to you. Keep in mind that your loan application may be more likely to be approved if you take steps to help lower the lender’s risk, such as also earning income from a part-time job, for example.

How can I get a bad credit car loan?

Getting a car loan with a bad credit history can be made easier by contacting loan providers that specialise in bad credit car loans. These companies may cater to individuals with bad credit ratings, as well as self-employed and first-time borrowers who may find it hard to prove they are reliable borrowers to traditional lenders.

Of course, there are catches in going through these providers, the main one being that the interest rate on the loan may be higher than average. The high interest rate is used to help mitigate the risk the lender takes on by allowing you to take out a loan with a bad credit rating.

Where can I get advice on car loans for bad credit?

Another path you can go down is to consult a finance broker. There are two main advantages with using a broker:

• Brokers generally don’t charge for their services – instead, they receive commission payments from lenders.
• They can recommend car loans from a range of lenders, as opposed to you approaching lenders directly, who will only recommend their own products.

Finance brokers are qualified professionals who are required to follow the National Credit Code and to observe responsible lending practices.

What is bad credit?

Credit bureaus such as Equifax use your credit history to generate your credit score or credit rating, which is a number that summarises your history of managing money.

For example, Equifax credit ratings are scored out of 1200:

• 0 to 509 – below average or bad
• 510 to 621 – average
• 622 to 725 – good
• 726 to 832 – very good
• 833 to 1200 – excellent

A bad credit score can happen to anyone who has struggled with borrowing and repaying money in the past – find out more about how credit scores work and how to improve them.

Why do I have a bad credit rating?

Once you retrieve your credit history you may notice that there are some factors that could add up to you having a bad credit rating. These may include:

• Missed repayments on money borrowed
• Delayed repayments on money borrowed
• Defaulting on a loan
• Having declared bankruptcy in the past
• An excess of credit enquiries over a short period

Stay in the know

It is important to stay in the know about your credit history, so that small mistakes don’t end up putting you in a worse financial position. It’s also important to never take out a loan that you don’t think you will be able to repay. You can use a car loan calculator to estimate what the repayments may be, then budget them into your normal expenses.

If you don’t think you can comfortably make the repayments and wouldn’t be able to keep up the repayments if you experienced a change in circumstances, you might want to rethink taking out the loan. 

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