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Car Loan Interest Rates for Bad Credit

Feb 18, 2022 | Finance Tips

Purchasing a new or used car is an exciting time! Don’t let bad credit put a dampener on it.  

If you’ve got a bad credit score and you’re looking for a Car Loan, chances are, you’ll pay a higher interest rate than if you had a good credit score. This is because the lender will likely see you as more of a risk, so the interest rate reflects this risk. However, that doesn’t mean you should stop searching for a Car Loan with a low interest rate! Some car loans for bad credit have higher interest rates than others, so it’s still possible to find finance that suits your circumstances.

Read on to find out (nearly) everything you need to know about Car Loans for bad credit and how you can hopefully get approved for one with an interest rate that won’t break the bank.

What is a Car Loan for bad credit?

A ‘Car Loan for bad credit’ is a term for finance specifically designed for applicants who have a bad credit score (also referred to as a bad credit rating).

Every time you apply for any type of credit (including loans, credit cards, mobile phone or electricity accounts), the credit provider will check your credit score before deciding whether or not you’ll be safe to lend to. There are credit reporting agencies in Australia that compile your credit history and determine your score. When you don’t make your credit repayments on time or in accordance with your Credit Contract (or at all), your credit score may drop.

Lenders view you as higher risk if you have a bad credit score, so they may either charge you a higher interest rate or decline your application. If your application is approved, your repayments and the total amount of interest you pay on your loan will likely be higher than on a loan for ‘good credit


How can I check my credit score?

You can check your credit score and report for free online with credit reporting agencies in Australia like EquifaxExperian and Illion. It can be a good idea to check your score periodically (about once a year) to make sure it’s free of any errors. Knowing your score gives you an idea of what sort of credit products you can apply for. Getting knocked back for credit applications can have a negative impact on your credit score, so it’s important to understand what types of credit suits your circumstances before applying.

What is a bad credit score in Australia?

Different credit reporting agencies generally have different scoring systems. A bad credit score range for the main credit reporting bureaus are listed below.

  • Equifax: any score below 500.
  • Experian: any score below 550.
  • Illion: any score below 300.

What is a good interest rate on a Car Loan with bad credit?

Although loans with high interest rates for applicants with bad credit are common, t’s important to remember that it’s hard to define what a ‘good’ interest rate is on a car loan for bad credit. This is because the interest rate you could qualify for will depend largely on your credit rating, borrowing capacity and current circumstances. What you might consider an average car loan interest rate for you, could be a great rate for someone else, with different circumstances.

Also, the interest rate shouldn’t always be the determining factor when comparing car loans. Things like comparison rate, the ability to make extra repayments, ongoing fees, early repayment fees, monthly account fees and eligibility criteria need to be weighed up when you compare car loans.

The hard part with looking for the right loan is knowing where to start. There’s a huge range of lenders out there, and not all will approve car loans for bad credit. That’s where using the services of a lender who specialises in car loans for bad credit can save you a lot of time and hassle. At Finance One, we want to help you find the right car finance option for you without you having to apply with different lenders and hope for the best. It’s important to avoid getting your application rejected by lenders because this can damage your credit score even further.  

How to improve your chances for getting a Car Loan with a lower interest rate if you have bad credit

In addition to talking to a lender who specialises in providing Car Loans with bad credit, there are some smart things you can do to improve your chances of getting approved at the lowest possible interest rate.

Apply for a Secured Car Loan
Secured Car Loans provide more security for the lender than unsecured car loans, so they may be more likely to approve your application at a lower rate. But it’s important to understand that if you don’t make your repayments in accordance with your Credit Contract on a Secured Car Loan, the lender can legally repossess and sell your vehicle to repay the loan. But there’s a simple way to avoid that — make your car loan repayments, in full, on time, every time!

Consider getting a guarantor for your loan
A guarantor is someone who agrees to become legally responsible for your loan if you don’t make your repayments in accordance with your credit contract (usually a family member). A guarantor lowers the lender’s risk, so you may be more likely to get approved for a lower interest rate if you have a guarantor on your loan application. And when you make all your repayments on time and in accordance with your credit contract, the lender should never have to contact your guarantor. However, it is strongly recommended that both you and your guarantor seek independent and separate professional advice prior to entering into any agreements so that all parties fully understand what they are agreeing to.

Improve your credit score as much as you can before you apply
There are a number of things you can do to improve your credit score. Limiting credit applications, lowering your credit card usage and paying any overdue debts you have in full may help to increase your rating. It’s important to understand that it can take a while for your credit report to improve, so the earlier you start doing these things, the better.

Maintain stable employment
Lenders like to see a stable employment history wherever possible. Resist the urge to regularly change jobs if you can, otherwise, your application can appear riskier to a lender, and they may charge a higher interest rate.

If you currently work casually, you may like to try and get full-time work with regular hours, so you have a more stable, permanent income. This may also make you appear less risky to lenders.

Reduce or minimise any non-essential expenses
The main concern of any lender when assessing your loan application is that you will make your loan repayments in accordance with the credit contract. You need to demonstrate that you can afford your repayments, so reducing or eliminating any non-essential expenses that you have will help you to show that to the lender. 

Maintain your address
Lenders also like you to have a stable residential address wherever possible. Again, resist the urge to regularly change addresses if you can.


How Finance One may be able to help you find a Car Loans

At Finance One, we specialise in helping Aussies with second-chance finance. We have Car Loans for applicants with bad credit, ranging from $5,000 to $75,000**. We take the time to understand your situation before recommending our Car Loans.

Simply contact us on 1800 346 663 to find out how we may be able to help you.


** Loans between $50,000 to $75,000 must be asset backed. 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.

Finance One means “Fin One Pty Ltd – ABN: 80 139 719 903 – ACL: 387528 (trading as Finance One)”

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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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