These days, having a car is basically a necessity and it certainly gives us the keys to independence.
However, getting approved for a Car Loan can be significantly hampered by bad credit. Your dreams of financing a car don’t have to be dashed by a bad credit history, but applying the brakes and doing your homework in advance can make all the difference when it comes to obtaining a Car Loan for bad credit.
At Finance One, we are here to help, which is why we’re providing our top 7 tips on how to apply for a Car Loan with bad credit.
What is poor credit?
Before we get into our suggestions for how to improve your chances of getting a Car Loan with bad credit, let’s define the term ‘poor credit’.
When you apply for credit, such as a Car Loan, Personal Loan or credit card (or even a mobile phone plan), your details are run through a credit check to determine your creditworthiness. In Australia, your credit score will range anywhere from 0-1000, or 0-1200, depending on the credit reporting agency.
From the perspective of lenders, the higher your credit rating (your ‘credit score’), the less risky you’re likely to be to lend money to. By the same token, the lower your credit score, the more risky you look. Unfortunately, having a bad credit score (usually a score of 500 or less) can really put a spanner in the works to getting a Car Loan.
How do I identify a good Car Loan when I have bad credit?
There are plenty of Vehicle Loan options available if you are in the market to purchase a car. However, you won’t have as many options if your credit score is low.
Rather than looking for the best Car Loan on the market, make sure you’re looking for the best loan for you — your personal circumstances are unique, so determining whether a Car Loan is good or bad comes down to whether it’s suitable for your situation.
While dealer financing may be appealing if you’re purchasing from a car yard, it’s a good idea to shop around to find the best loan for you.
Features to look out for when deciding if a loan is right for you:
- Flexibility to make additional repayments.
- Balloon payment to reduce the regular repayments.
- Interest rates. Fixed interest rate or variable rate loan.
How to apply for a Car Loan with bad credit
Now it’s time to introduce our top seven tips for applying for vehicle finance if you have poor credit.
- Look into your credit file and fix any mistakes
Believe it or not, mistakes can happen from time to time. You can access a free copy of your credit file through various credit reporting agencies. Ensure that your personal details, including your name, contact details and address, are correct, as well as noting any Personal Loans or other credit products are reported correctly.
Errors on your file, such as a default listed in error, may inaccurately reflect your financial situation and seriously affect not just your Vehicle Loan application but all credit applications in the future.
- Clear any unpaid defaults
A default can occur if a payment of $150 or higher is overdue by 60 days or longer. Understandably, sometimes monthly repayments get missed, but your chances of accessing a loan with outstanding defaults on your credit are low. By repaying any unpaid defaults, you can have your credit file updated to reflect this and then likely have a more solid file to work with.
- Keep your bank accounts in good order
Even Car Loan applicants with a good credit history can fall over at the application finish line if their bank accounts are frequently overdrawn. Maintaining your bank and credit card statements in good order will help you demonstrate financial discipline to lenders, as most will want to review them as part of the application process.
One of the best ways to show that you have sound financial habits and can handle a loan is to be able to create and maintain a regular budget. The best method to get lenders to look past your credit history is to pay your bills on time and even sale a small amount each week. Your credit score isn’t always a reliable indicator of your financial habits.
- Know your budget for a Car Loan with bad credit
Although purchasing a new car is an extremely exciting moment, if you’re going over budget, the honeymoon period may soon end. When considering a car purchase, it’s critical to take into account all of the associated expenses, such as registration, fuel costs, servicing, as well as the monthly payments on your loan.
If you would like to know exactly how much you can borrow, you might want to get pre-approval from a lender.
- Consider a longer loan term
Car Loans are typically offered anywhere from one year up to five or seven years. The longer the loan term, the longer your Car Loan repayments are spread out over, which can make the monthly repayment more affordable for your budget.
- Look at a secured Car Loan
Car Loan providers offer both secured and unsecured loans. A secured loan uses the car as collateral for the loan, which means that if you default, the credit provider can repossess the vehicle to recoup lost funds. Adding a layer of security for your lender can not only strengthen your Car Loan application, but it may also result in a more attractive interest rate.
An unsecured Car Loan means that you have taken out an unsecured loan through a lender and are choosing to use the funds to purchase a vehicle, which offers no security to your lender.
- Don’t apply for multiple Car Loans at once
It can be tempting to applu to several lenders at once if you’re itching to get into the driver’s seat. However, submitting multiple applications at one time can reflect poorly and contribute to a bad credit rating. Instead, take the time to assess which is the best Car Loan for your individual needs.
It can be a good idea to compare Car Loans using comparison rates; however, bear in mind that there is more to consider when you compare Car Loans. A comparison rate does not account for your financial circumstances, even though it is true that it will consider the advertised interest rate and loan fees, such as monthly service fees or monthly account fees. The eligibility criteria may be far less flexible than other lenders and won’t show the higher interest rate you could be charged for having poor credit.
Car finance for bad credit is something that specialist lenders such as Finance One can offer.
Applying for a Car Loan to buy a new or used car, even with poor credit history, is easy with Finance One. Regardless of whether you’re self-employed or are receiving Centrelink benefit payments, we pride ourselves on finding a tailored solution to help you with applying for vehicle finance.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.
Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.