How to Get a Car Loan with Bad Credit in Australia
If you’re dealing with bad credit and need car finance in Australia, you might feel like your options are limited. But the good news is that it’s still possible to secure a bad credit car finance deal—even with a bad credit history or poor credit score.
In this article, we’ll walk you through the steps to improve your chances of approval and offer practical tips to help you confidently submit a successful car loan application.
What is Bad Credit and How Does It Affect Car Loans?
Bad credit refers to a low credit rating that results from missed payments, defaults, bankruptcy, or other financial missteps. In Australia, credit scores range from 0 to 1,200, with scores below 500 typically classified as a bad credit score.
Lenders use your credit file and credit check results to assess your risk as a borrower. A low score signals that you may have difficulty repaying the loan, which can impact your loan application, lead to higher interest rates, or limit your loan options. In many cases, you may still be eligible for bad credit loans or bad credit car finance, though the terms may not be as favourable.
Common Factors That Lead to Bad Credit:
• Missed or late loan repayments
• Defaulting on a personal loan or auto loan
• Filing for bankruptcy
• High levels of existing debt or loan amount
• Frequently submitting a loan application or seeking credit
Can You Get a Car Loan with Bad Credit?
Yes, you can get a car loan with bad credit in Australia. While traditional lenders like banks may be more stringent with their requirements, there are specialised bad credit finance and bad credit car finance providers who cater to people with a poor credit score.
These lenders tend to focus more on your current income, expenses, and ability to meet your loan repayments, rather than just your credit history.
Key Considerations When Applying for a Bad Credit Car Loan:
• Interest rates: Expect to pay higher interest rates compared to standard car financing or secured car loan options.
• Deposit: Offering a larger deposit may improve your car loan application approval chances.
• Loan term: Lenders may offer shorter terms to reduce risk, which affects your loan amount and overall loan repayment schedule.
• Income verification: Lenders will likely request proof of income to assess your ability to manage ongoing loan repayments and avoid future credit issues.
Steps to Improve Your Chances of Getting a Bad Credit Car Loan
If you want to boost your chances of approval, follow these steps before applying:
1. Check Your Credit Score
Before submitting a loan application, check your credit rating through a reputable agency like Equifax or Experian. This will give you a clear idea of where you stand and help you address any issues affecting your credit file.
2. Fix Any Errors on Your Credit Report
If you notice any mistakes on your credit file, such as incorrect defaults or missed payments that were actually on time, contact the credit reporting agency to have them corrected. This could improve your bad credit score more quickly than you think.
3. Pay Off Existing Debts
Lenders will consider your current debt levels when assessing your car loan application. If possible, pay down existing personal loans, credit cards, or other debts to reduce your loan amount and improve your debt-to-income ratio.
4. Save for a Larger Deposit
The more you can contribute upfront, the less you’ll need to borrow. A larger deposit reduces your loan amount, makes your loan repayments more manageable, and can improve your chances of being approved for a secured car loan or bad credit finance.
5. Get Pre-Approval
Consider getting pre-approved with a lender that specialises in bad credit car finance. This will give you a clearer picture of your borrowing power and help you compare the best loan options before committing to a vehicle.
What to Look for in a Bad Credit Car Loan
When shopping for a bad credit car loan, it’s essential to compare your car financing options and ensure you’re getting the best deal possible. Here are some key factors to consider:
1. Interest Rates
Interest rates on bad credit loans are generally higher, but some lenders may offer more competitive rates than others. Compare offers and choose one that fits your budget and credit guide.
2. Loan Terms
Check the length of the loan term. A shorter term may lead to higher loan repayments but will save you money on interest overall. A longer-term loan may offer lower repayments but increase the total loan amount paid over time.
3. Fees and Charges
Some lenders charge additional fees, such as loan application fees, monthly account fees, or early repayment penalties. Make sure to read the fine print and understand all associated costs before committing to any loan option.
4. Flexibility
Look for loans that offer flexibility—such as the ability to make extra payments or pay off the loan early—without penalties. This is especially useful if your financial situation improves or you refinance later into a secured car loan.
Alternative Options to Get a Car Loan with Bad Credit
If you’re finding it challenging to get approved for a bad credit car loan, there are several alternative routes you can explore:
1. Apply with a Guarantor
Some lenders may allow you to apply with a guarantor. A guarantor is typically a family member who agrees to cover your loan repayments if you’re unable to. Having someone with a strong credit rating can significantly increase your chances of loan approval.
2. Consider a Secured Loan
A secured car loan uses an asset—like the car you’re purchasing—as collateral. Lenders are often more willing to approve these because they have something to fall back on if you default. This may also lead to more favourable terms than an unsecured personal loan or auto loan.
3. Explore Other Types of Loans
Depending on your circumstances, other finance options such as a commercial loan, business loans, or even a home loan (with equity redraw) might be worth exploring—especially if your car is being used for work purposes or bundled into a broader refinance strategy.
4. Improve Your Credit Score Before Applying
If you don’t urgently need a vehicle, consider improving your credit score before applying. Paying off debts, consolidating bad credit loans, and making timely payments can raise your credit score and improve your chances of securing better loan options in the future.
The Application Process for a Bad Credit Car Loan
Applying for a bad credit car loan is similar to applying for any other type of financing, but there are a few extra considerations for those with a bad credit history or credit issues:
1. Gather Necessary Documentation
Lenders will typically require the following:
• Proof of identity (e.g., driver’s licence)
• Proof of income (e.g., payslips or bank statements)
• Details of any existing debts, personal loans, or liabilities
• Employment history
• Consent for a credit check
2. Submit Your Application
Once you’ve gathered the required documents, submit your car loan application online or in person. Use a car loan calculator beforehand to estimate your potential repayments and ensure the loan amount fits your budget.
3. Await Approval
Approval times vary by lender, but most will respond within a few business days. If approved, you’ll receive your loan terms, including interest rate, loan repayment schedule, and any additional fees.
Final Thoughts: Can You Get a Car Loan with Bad Credit?
While having bad credit can make securing a car loan more challenging, it’s certainly not impossible. By taking steps to improve your financial situation, exploring your loan options, and working with a lender who specialises in bad credit car finance, you can still secure the loan amount you need to purchase a car.
Need Help Securing a Car Loan with Bad Credit?
At Naked Loans, we specialise in helping Australians with bad credit find the right car financing solution. Our friendly team can guide you through the process, compare loan options, and help you secure the best deal for your situation. Whether you're looking for a secured car loan, personal loan, or even business loans, we’re here to help. Get started today and see how we can help you hit the road faster!