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7 Tips for Applying for a Car Loan With Bad Credit

Jul 5, 2022 | Finance Tips

A car is almost a necessity these days, and certainly gives us the keys to independence.
However, poor credit can be a major roadblock when it comes to being approved for a car loan. A bad credit history doesn’t need to park your dreams of car finance, but putting your foot on the brakes and doing your homework first can make all the difference when it comes to getting 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 jump straight into our tips on what you can do to boost your chances of getting a car loan with bad credit, let’s take a look at what ‘poor credit’ actually means.
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 how creditworthy you are. In Australia, your credit score will range anywhere from 0-1000, or 0-1200, depending on the credit reporting agency.
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 how creditworthy you are. 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.

What affects my creditworthiness?

Your credit report will show whether you have defaulted (i.e. stopped making payments or didn’t make payments in accordance with your Loan Contract) on any existing loans, or even been late with making your repayments. Your credit history will also include every time you’ve applied for credit (even if you didn’t go ahead with the application, or if you were declined). It might go without saying that if you’ve filed for bankruptcy in the past, or entered into a Part IX Debt Agreement, then this will certainly show up on your credit history.

How to apply for a car loan with bad credit

Now it’s time to introduce our top 7 tips for applying for vehicle finance if you have poor credit.

1. 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. Make sure 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.

2. Clear any unpaid defaults

A default can occur if a payment of $150 or higher is overdue by 60 days or longer. It’s understandable that 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.

3. 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. Most lenders will want to review your bank statements, including your credit card statements, as part of your application process, so keeping these in ship-shape will help to demonstrate financial discipline.
Being able to set and stick to a regular budget is a fantastic way to demonstrate that you have healthy financial practices and will be able to manage a loan. Your credit score isn’t always a reliable reflection of your financial habits — so paying your bills on time and even saving a small amount each week is the best way to allow lenders to look past your credit history.

4. Know your budget for a car loan with bad credit

Buying a new car is a super exciting time, but the honeymoon phase can quickly wear off if you’re buying outside your budget. When looking at a car purchase, it’s important to consider the full costs of car ownership, including registration, fuel costs, servicing, as well as the monthly payments on your loan.

Car Loan Calculator

Looking at a lower price point would mean a lower loan amount, which may give you more chance of being approved. If you’d like an idea of what your monthly repayment may be if approved for a loan with Finance One, check out our car loan calculator!

5. Consider a longer loan term

Car loans, including car loans for bad credit, 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.

Good to know:

Even if you choose a longer loan term, we won’t charge you any early repayment fees to pay off the loan early or any extra repayment fees to pay more off when you can!*

*This applies to Finance One Consumer Loans only.

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6. Look at a secured car loan

Car loans come as both secured or unsecured loans. A secured loan uses the car as security against the loan, meaning if you default, the credit provider is able to reclaim the car in order to recoup lost funds. Adding a layer of security for your lender can not only help strengthen your application, but may also mean you’re offered 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.

7. Don’t apply for multiple car loans at once

Applying to multiple lenders at once can be tempting if you’re itching to get into the driver’s seat. However, 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.
Comparing car loans via a comparison rate can be a good idea; however, bear in mind that there is more to consider when you compare car loans. While it’s true that the comparison rate will take into account the advertised interest rate and loan fees such as monthly service fee or monthly account fees, a comparison rate doesn’t factor in your financial situation. 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.

Accessing car loans for bad credit through Finance One

 

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. Backed by our Australian Credit Licence, we can get you on the road fast with a Finance One vehicle loan.

Contact us today to find out more about how we may be able to help you.

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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.

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WRITTEN BY

WRITTEN BY

Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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