Is there a minimum credit score for a car loan in Australia?

In promising news for prospective buyers with a shaky credit history, there’s no fixed minimum credit score for a car loan in Australia.

However, as lenders refer to your credit score to determine the risk of providing a loan to you, a lower score might make them wary of lending to you. Consequently, they might charge you a higher rate of interest to reduce their risk, or, in some cases, reject your application altogether. So, if you’re considering financing for your car, your credit score is an important number to understand and track.

What is a credit score?

A credit score or a credit rating is a number representing your reputation as a borrower. It’s calculated based on your financial history, which is listed in your credit report.

Credit scores are used by lenders to gauge how likely you're to repay a loan in the future. Depending on your credit score, a lender will decide whether and how much money they're willing to lend to you and at what terms. Typically, the higher your credit score, the more creditworthy you're considered by lenders, making you eligible for a wider variety of financing options at more competitive rates.

How does my credit score affect my interest rate?

Borrowers with higher credit scores tend to attract lower interest rates. That's because lenders feel more confident in your ability to repay the debt if you have a high credit score.

A low credit score may not keep you from qualifying for a car loan, but it can limit your financing options. You may need to pay higher interest rates or make a larger down payment than borrowers with high credit scores.

For instance, applying for a car loan with a credit score of 700 may qualify you for a low interest rate. However, if you're applying for a car loan with a credit score of 560 or lower, you can expect to pay interest at a higher rate than the market average.

It’s usually a good idea to check your credit score with any of the four credit bureaus before applying for any type of credit. You may also use our credit score hub to get both your Experian and Equifax credit scores in your inbox.

What's a good credit score for a car loan?

Different credit bureaus generate credit scores differently. For example, here’s how Equifax and Experian use a slightly different scales to rank credit scores into five bands:

Based on these tiers, an Experian credit score between 625 and 699 and an Equifax credit score between 622 and 725 are considered good. Anything above this is even better.

So if you're applying for a car loan with a credit score higher than 620, you have better chances of both approval and a lower rate offer.

What happens if I apply for a car loan with bad credit?

If you have a low credit score, you may find it hard to get a loan from a traditional lender. Alternatively, you may be offered a loan with a high interest rate. In such a situation, you may consider a bad credit car loan from a specialist lender who’s more likely to approve your application for finance, but these loans often come with higher rates.

It’s worth remembering that not making your repayments on time can reduce your credit score further. Therefore, unless you require a car urgently, it might help to wait it out and work on repairing your credit before filing an application for new credit. It's also worth using a car repayment calculator to estimate your weekly, fortnightly or monthly repayments to realistically assess whether you can afford a car loan or not.

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