What is the lowest credit score for a car loan?
If you’re in the market for a new set of wheels, you might need vehicle finance to help fund your purchase. Whether you’re applying for a new car loan or a standard auto loan, understanding how your credit score impacts your loan approval can make all the difference.
Whenever you apply for a loan – whether it’s a vehicle loan, auto loan, home loan, or personal loan – lenders want to know how likely it is that you’ll repay the money. As part of the assessment process, lenders generally look at a borrower’s credit report to determine loan approval.
So, what is the lowest credit score for a car loan?
In good news for those of us with less-than-perfect credit scores, there’s no minimum score needed to be approved for a vehicle finance option in Australia. So, it’s theoretically possible to get approved for a new car loan with any credit score.
That’s where Naked Loans comes in. We have relationships with dozens of lenders and understand their lending rules. That’s why we’re experts in getting car loans approved for our clients, even when they’ve been declined before.
A word of warning if you’re thinking of taking a scattergun approach and sending multiple auto loan applications to various lenders. Submitting numerous applications can harm your credit score – and getting declined can do even more damage. That’s another reason why it makes sense to partner with an expert car financing broker like Naked Loans, especially if you have a poor credit score.
How does my credit score affect my car loan?
Many lenders offer different interest rates and loan terms based on a borrower’s creditworthiness, a practice known as risk-based pricing.
Generally, the better your credit score, the lower the interest rate on your vehicle loan. On the other hand, a lower score often results in higher rates for car financing.
For example, bad credit car loans typically come with higher interest rates than standard low-interest auto loans. Your exact rate will depend on your loan amount, credit history, income, and expenses.
Higher interest rates will make your car loan more expensive in the long run, as a car loan calculator will quickly show you. If you have poor credit, you may still qualify for vehicle finance, but be prepared for higher interest rates and potentially smaller loan amounts.
However, at Naked Loans, we have relationships with over 30 lenders. This gives us access to the lowest interest rates available in the market today. So we can find you the best deal possible for your personal circumstances, even if you have bad credit.
Ourcar loan application process is free and won’t affect your credit score.
How can I check my credit score?
Your credit score doesn’t just affect your ability to get approved for a vehicle loan; it also plays a major role in the loan terms and interest rate you’re offered.
That’s why it’s always a good idea to check your credit score before applying for car financing. But how do you go about it?
In Australia, there are three credit reporting agencies: Equifax, Experian and Illion. These agencies collect personal and financial information about you, such as your:
● Credit applications
● Repayment history
● Payment defaults
● Serious credit infringements
● Personal insolvency or bankruptcy details
● Personal details
This information is put into a credit report and used to calculate your credit score.
Each credit reporting agency takes a different approach to collecting information and uses its own algorithm to calculate credit scores. So your credit report and credit score may vary from agency to agency.
In Australia, you have a legal right to get a free copy of your credit report every three months from each credit reporting agency.
What's a good credit score for a car loan?
Depending on the credit reporting agency, your score will be between 0 and either 1,000 or 1,200.
So what do those numbers mean? Well, according to CreditSmart, if your credit report shows scores out of 1,200:
● 853 and above is excellent
● 661 to 852 is good
If your credit report shows scores out of 1,000:
● 690 and above is excellent
● 540 to 689 is good
How can I improve my credit score?
What should you do if you’re looking for the best car loan in Australia … and you request a copy of your credit report from one of the agencies … and your credit score turns out to be on the low side?
Well, thankfully, your credit score isn’t set in stone; it goes up and down depending on your financial behaviour. So if you don’t need to buy a car right away, there are steps you can take to improve your score in the months leading up to your car loan application.
This won’t just increase your chances of approval. It can also help you secure a lower interest rate and more favourable terms.
Here are five ways you can boost your credit score:
Pay your bills on time – Your payment history is one of the biggest factors that go into calculating your credit score. That’s why you must do your best to pay on time, every time. Setting up direct debits is a great way to make sure you’ll never forget a payment again.
Pay off any outstanding debts – If you miss a payment and the bill is for $150 or more and at least 60 days overdue, it will be listed as a default on your credit report. Defaults stay on your report for five years and negatively impact your credit score.
Limit new credit applications – Every time you make a new credit application, it shows up on your report as a ‘hard enquiry’. Too many hard enquiries in too short a time can damage your credit score. As such, if you're rejected for credit, don’t apply to multiple lenders in quick succession, as this can make your situation worse. Rather, work with an expert finance broker like Naked Loans.
Lower the limit on your credit cards – Consider reducing your limit or getting rid of credit cards you rarely use. This is because your credit report only takes into account your total credit limit, not your actual balances.
Check your credit report – Incorrect listings could be unfairly dragging down your credit score. If you find any, contact the credit reporting agency or work with a credit repair agency to get it corrected.
How long does it take to fix your credit score?
The time it takes to recover from a poor credit score depends on why it’s low in the first place. If your score is affected by mistakes on your credit report, disputing and removing the listing can lead to quick improvement, potentially making you eligible for better auto loan rates.
On the other hand, late payments stay on your report for two years, but the impact will lessen over time, improving your chances of vehicle finance approval if you maintain good financial habits moving forward.
How can I get a car loan with bad credit?
Got bad credit but need a car fast? Don’t panic. A bad credit history won’t necessarily stop you from getting approved for a car loan. Bad credit car loan specialist lenders do exist, so you can still get car finance.
What’s more, work with Naked Loans, and you can still get a competitive interest rate – even when you do have bad credit. That’s because we specialise in second-chance finance and compare over 30 lenders to find you the best deal possible.
Naked Loans also has arrangements with lenders that are willing, under certain circumstances, to ignore borrowers' credit scores and still offer them competitive interest rates. For example, we had a client who had a credit score of just 190, putting her in the bottom tier – yet we were able to get her a $30,000 loan priced at just 4.95% because she had a long tenure in her job and also owned her own home for a long time.
Our service is completely free, even though we work on your behalf. That’s because we are paid a commission by the lender whenever we arrange a car loan.
The online application takes only ten minutes to complete and won't affect your credit score. Once we receive your application, we’ll get back to you with your finance options within 48 hours.
Our loans are up to $100,000 and come with a competitive interest rate, no deposit and flexible terms to suit your specific situation. Most of our bad credit car loans are for two to seven years.
Looking for the best car loan in Australia? Naked Loans can help – even if you do have low credit. Apply online now or contact us by calling 1800 438 625, emailing info@nakedloans.com.au or filling in this online form.