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Does a Car Loan Build Credit?

Feb 3, 2023 | Stories

Sydneysider Vikas Bhatia was able to get a car loan so he could start to rebuild a better credit score, despite having financial difficulties in the past.

Life’s path isn’t always paved with gold, as Sydneysider Vikas Bhatia realised when he hit financial difficulties a few years ago and was left with more than just a low credit score.

After a restaurant venture that didn’t work out, Vikas went back to ‘financial square one’ by filing for bankruptcy. The result for Vikas was a three-year period where he couldn’t make any credit applications, and his historically good credit score took a massive tumble.

Faced with a poor credit score and an inability to open more credit accounts with standard loan providers, Vikas was put into a tricky situation as he worked to repair his credit history.

Impacts of bankruptcy on your credit file

To file for bankruptcy is not a decision that many take lightly, as it is typically the last resort in the line of options for getting on top of unmanageable debt. While late payments, loan defaults and debt agreements can negatively impact your credit score, bankruptcy has the most severe consequence on your credit score.

In Australia, the period of bankruptcy is three years. This means that although a trustee will be appointed to take over your affairs, in most instances, you will need to close your existing credit accounts and will not be able to apply for new credit within the period that you are considered an ‘undischarged bankrupt’.

Once you are discharged from bankruptcy (when the bankruptcy period ends), the bankruptcy will remain on your credit report for a further two years. This means that although not impossible, accessing further credit, such as for personal loans or car loans, can be challenging. Unfortunately, your bankruptcy status will remain on the National Personal Insolvency Index (NPII) for life.

Finding a lender who’ll look past your credit report

Vikas came across Finance One after applying with a different company that was unresponsive and didn’t seem able to help with his car loan. “I needed to start my financial journey again, and I found Finance One through an online advertisement,” he explains.

“I knew I had all the information I needed, including my pay slips as evidence of employment, bank statements and identification. It was just a matter of finding a lender who would work with me.”

Vikas decided to apply for a car loan because that would at least give the lender an asset in the event of the loan not working out if something unexpected happened. Looking to purchase a reasonably-priced HAVAL H2, he reached out to Finance One and liaised with Service Agent Cody.

“The whole process took around ten working days,” says Vikas. “I knew Cody needed some time. However, he was very quick to send emails, and once approval came back, everything happened very fast.”

How does financing a car build credit?

Vikas appreciates that, in Australia, there are rules and regulations in place to prevent people from borrowing beyond their capacity. Since his financial setback, Vikas has worked hard to reach a positive place and is now making plans for the future.

And while Vikas could have paid for a car himself, doing so may not have helped to improve his bad credit rating. “If you pay cash, you don’t get a credit score,” he explains.

Taking out a car loan and paying it off is part of Vikas’ plan to get back on track. Vikas hopes his consistent and on-time repayments will eventually prove he is a reliable borrower. This will hopefully allow Vikas and his wife to pursue new ventures in the future.

Why work with Finance One

Vikas is happy to recommend Finance One to anyone who has a bad credit history and is seeking to apply for a loan. “They were flexible, quick and very responsive,” Vikas explains.

He adds that “It’s not all about getting approval. What was important to me was having people be upfront. But Finance One has good resources and the ability to approve loans. They were able to get my application across the line.”

Finance One is here to help

Reach out to Finance One to discuss your options when applying for a loan. You will be able to access clear, helpful information from a hands-on representative who will endeavour to understand the challenges you are facing and will try to help you find the best solutions for your situation.

Apply Online Now

Our tips for getting a car loan or personal loan with a bad credit history

Whether you’re applying for a loan to start building credit back up again or need personal finance or an auto loan, but your credit report is letting you down, we provide tips for getting finance with bad credit.

Make on-time payments for existing accounts

Your payment history for credit accounts is not only shown on your credit file, but missing payments can negatively impact your credit score! By making on-time payments, you can ensure that you can help rebuild your credit profile and demonstrate to a new lender that you are reliable and diligent with loan repayments.

Keep some accounts open on your file

It can be tempting to close down all of your credit accounts, however, having a longer credit history can actually work in your favour to maintaining a healthy credit score or being approved for finance. Why? Well, a long credit history shows your lending and repayment behaviour over time. Without any history, it can be difficult for credit providers to assess your creditworthiness outside of relying purely on your rating.

Put down a deposit

Those with lower credit scores are commonly considered higher-risk borrowers. For this reason, it can be helpful to put down a deposit towards the loan. Auto financing often means making a down payment towards the car, but offering an initial amount for the lender can help showcase a willingness to work with the provider and also could help secure a slightly lower interest rate.

Do your research before applying

The last thing you want is your efforts to rebuild credit to go against you and damage your rating further! This is why it’s so important to only make a hard inquiry (that is, when a loan provided runs a credit check) if you’re confident that’s the product you want to apply for. Too many credit applications in a small period of time can reflect poorly on your credit file.

Apply for a Finance One Loan Today

At Finance One, we assess all applications on their own merits, so we can be very flexible and even help Aussies with bad credit get the right car loan for their situation. We take the time to understand your individual circumstances before recommending a flexible finance solution to suit your needs.

Apply Online Now

Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.

Finance One means:
Fin One Pty Ltd – ABN: 80 139 719 903
Australian Credit Licence: 387528

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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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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