How To Get A Car Loan (Even If You Have Bad Credit)
You may have found yourself in the position where you need a car loan but you have a bad credit history. The question then arises... how to get a car loan when your credit history is less than ideal? The good news is that you can still get a car loan — and even better, you can secure a car loan repayment plan that works for you. Not only can you get approved, you can even get a great rate.
In this blog article, we’re going to show you how to get a car loan, the obstacles you may encounter, and talk you through the advantages and disadvantages of bad credit car loans. We’ll also explore different loan options, from secured personal loans to unsecured personal loans, and guide you through how credit criteria affect your chances of approval.
Can I get a car loan even with bad credit?
The short answer… yes!
A lot of people think that because they didn’t get approved for a home loan or missed a phone payment once upon a time, their credit history will be automatically deemed bad. However, that’s not always the case – you might actually have good credit. There are a variety of reasons you may not have been approved for a loan amount in the past, such as not having enough deposit or a high enough income.
The good news is, just because you got rejected by a big bank doesn’t mean you will get rejected elsewhere. The big 4 banks (Commonwealth, ANZ, Westpac, and NAB) are quite strict and often knock back people that multiple lenders would happily lend to. Exploring different loan options and considering personal loans might be the perfect solution for you.
How to get prepared.
If you actually do have a bad credit history (you can find out more information about your credit rating here), you can still get car finance. Taking the time to understand which car loan options you want to apply for and gathering as much supporting information as you can will help your application. Supporting documents will often include pay slips, bank and credit card statements, or evidence of benefit payment eligibility.
Demonstrating good financial habits, like putting money into savings regularly, may help indicate to a lender that you have the financial discipline required to pay off their loan. After considering your personal circumstances, it’s time to decide whether it’s appropriate for your situation to take the next step and apply for a personal car finance plan or explore unsecured personal loans.
Every financial institution will have different credit criteria for their loans, so don’t be discouraged if you are rejected from the first lender you apply to. There are a lot of alternatives such as car dealer financing, rent-to-own cars, or bad credit car loans.
The Application & Loan Approval Process
What lenders look for.
Getting car finance when you have a low credit score is definitely possible – you just need to find a lender who offers bad credit financing. When assessing your application, the lender will generally consider a range of factors to decide whether you are suitable for a loan, such as your credit history, any previous credit issues, current debt, the loan amount, and your income vs expenses.
This helps them assess your financial situation and if you can cover the monthly payment – whether it's a secured personal loan, a personal loan, business car finance, or whatever you're applying for.
It’s best to have this all prepared before you apply because 1) you want to know what they are going to find and 2) it will improve your chances of success. As with anything, you’ll always want to know your monthly expenses and create a budget so you can properly manage your car loan repayment with no surprises.
If you can, do your best to improve your credit score before you apply and save as much as you can for a deposit (which will also help you get approved faster). Using a loan calculator or car loan calculator can also help you estimate what you can afford and plan your repayments more effectively.
Advantages and Disadvantages of Bad Credit Car Loans
Advantages
There are two key benefits of getting a bad credit loan. The obvious reason is… you can get a new car! Just because you may not be eligible for a bank loan does not mean you are out of options.
Secondly, you’ll actually have way more car loan options than you thought. You might even end up with better customer service after discovering a provider whose sole purpose is to help people in your financial situation. The team will be well-versed in situations similar to your own and will be flexible and understanding.
Some lenders also give you the ability to customise your personal loan terms to suit your situation, especially if you're applying for personal car finance or a business loan. You may even avoid an early payment fee if you decide to pay your loan off ahead of schedule.
Disadvantages
The main downside of a bad credit car loan is sometimes they attract a higher fixed interest rate, meaning higher monthly repayments.
Depending on the lender, you may also have to put up more collateral as security. Whilst there are lots of great options for poor credit finance, be careful of predatory lenders who offer bad terms in exchange for a quick fix.
The fees and interest rate associated with a bad credit car loan will vary depending on your loan term, credit, income, and expenses. If you choose a reputable lending agency, they will work to ensure you are paying the lowest fees they can offer under your chosen loan option.
You might even end up with better customer service after discovering a provider whose sole purpose is to help people in your financial situation.
What is the difference between a secured loan and an unsecured loan?
The main difference between a secured loan and an unsecured loan is whether the lender requires security. If you're a borrower looking to finance a car, a secured car loan means you actually use the car you're buying as collateral to secure better loan terms. Usually, you'll get a better interest rate and have more flexibility if it's secured against an asset (like your new car).
An unsecured personal loan means you're just getting the loan straight up, and you get approved because you have a good credit score. The lender doesn't have any rights to your assets.
How long does it take to get a bad credit car finance?
The good news is the approval process doesn’t take any longer than a traditional loan. It can take as little as one day to get your auto loan approved depending on your situation. Make sure you’ve got all of your supporting documentation together before you apply, including evidence of your income and credit guide. If you need a hand, our team is here to help!
Get a car loan with Naked Loans.
At Naked Loans, we’ve helped thousands of Australians get approved for a car loan, even with bad credit. Our team can help you get approved for a loan option with a great interest rate in just 2 days. We do all the boring stuff so you can spend more time thinking about your new wheels and ensure you have the best financing option to suit your needs.
Naked Loans has access to the lowest interest rates and best deals available in the market today. Our car loan brokers will compare options from 30+ lenders to get you the best loan amount possible, with repayments from as low as 3.7%. The loan application is free and doesn’t affect your credit score. There’s no pressure or obligation from a salesperson, just apply and see if it’s a good fit for you! Here’s how it works:
Step 1: Application
Complete the online application form in just 10 minutes. Once complete, this gets assigned to one of our car loan brokers.
Step 2: Assessment
We prepare your car loan and send it to the lender. Once approved, you choose your vehicle, and we send the invoice to the lender.
Step 3: Contracts
You sign the lender contract, we compile the docs and double-check everything, then send it back to the lender for settlement.
Step 4: Settlement
The lender settles the contract, we obtain the settlement advice, send it to you and the vendor, and then you celebrate your new car loan!