Considering a car loan when you have bad credit can come with a whole lot of questions — especially ‘how much interest will I pay?’
Car Loans for bad credit don’t need to cost you an arm and a leg in interest, but the rate can be higher than if you had a more glamorous credit score.
We have designed this guide to hopefully help give you some insight into how your credit score could affect the interest rate you pay, and how you can find the best car loan for you.
What are Car Loans for bad credit?
Car Loans for bad credit aren’t a specific loan product type. Rather, the term refers to a range of different Car Loans designed for those with a bad credit history, credit defaults, no credit history, are in a Part IX Debt Agreement or even discharged bankrupts. In fact, these types of loans may not only suit those with bad credit or in Part IX Debt Agreements, but can also be a great solution for applicants who are employed part-time, casually or self-employed.
Car Loans for bad credit aren’t a specific loan product type. Rather, the term refers to a range of different Car Loans designed for those with a bad credit history, credit defaults, no credit history, are in a Part IX Debt Agreement or even discharged bankrupts. In fact, these types of loans may not only suit those with bad credit or in Part IX Debt Agreements, but can also be a great solution for applicants who are employed part-time, casually or self-employed.
What interest rate could apply to my car finance if I have bad credit?
Car Loan interest rates vary from lender to lender and can also be affected by the strength of your application (including your credit score). It’s impossible to tell you exactly what interest rate will apply to you until your loan application has been assessed. Because interest rates can vary so much, it pays to research more than just the interest rate when comparing car loan options. The comparison rate will help give you a good idea of all the fees and charges that apply in addition to the interest rate.
At Finance One, we look at your full credit profile before determining your interest, including:
- the stability of your employment,
- your residency status,
- your credit history,
- your income and your banking conduct,
- your full financial situation, including bank statements.
Are comparison websites good to compare car loan rates?
If you’re in the market for a new car, but have a credit report that leaves a lot to be desired, comparison websites can be misleading. Comparing rates for car loans when you have poor credit can be tricky. Typically, the comparison rate advertised doesn’t end up meaning much, with the true rate of interest not being clear until you’ve applied and been assessed. The cheapest car loan using the comparison rate method doesn’t always necessarily work out that way in the end when you need to factor in a bad credit rating.
At Finance One, we differentiate ourselves from the pack by considering people who would usually be declined by mainstream lenders.
It's handy to remember:
Once you’ve applied for a car loan, that credit check is marked as a credit enquiry on your credit file. Too many of these in a short period of time can make your credit worse. This is why it pays to speak to a specialist lender like Finance One, as we can talk with you about your options for applying with us before we hit the ‘go’ button.
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Do people with bad credit have higher car loan repayments?
When you borrow money for a car purchase, your monthly repayments are calculated taking into account your loan amount, loan term, rate of interest and more. To get a gauge on how much your loan repayment might be if you get approved, check out our user-friendly car loan calculator.
Here are some of the different factors that can affect your minimum monthly payments:
Whether you have a secured loan or unsecured loan
Security on a loan simply means that you offer up something to the lender so that they have a legal claim on it, in the event that you default on your loan and can’t pay it back. An easy example to look at is when people borrow money to buy a house. The mortgage is secured by the house. That is, if you can no longer afford the mortgage, and the bank has exhausted all other avenues, they can legally sell the house to repay the debt.
Unsecured Car Loans and Secured Car Loans work in the same way. An Unsecured Car Loan is essentially just like a Personal Loan, because your car does not secure the loan at all. It may not come as a surprise to you that Unsecured Loans typically come with higher interest rates because they are less secure to the institution lending you the money. Therefore, having a Secured Loan on your car will likely mean lower repayments.
Ongoing Fees
A monthly service fee is usually payable on most Car Loans which affects your monthly repayment. These will differ between lenders.
Caution
If you know somebody who has accessed finance for their new car through a car dealer, they can probably attest to car dealerships being notorious at hiding monthly fees, early repayment fees or early exit fees.
Fixed vs variable rate car loans Fixed rate loans have a fixed interest rate, so your repayments remain the same. A variable rate car loan has a variable rate of interest. This means that over your loan term, the interest you’re charged may go up or down and therefore makes your monthly repayments fluctuate too.
Balloon payments Having a balloon payment on your loan will affect your repayment amount, as it effectively sets an amount to be paid as a lump sum at the end of the loan. Depending on what your loan term is, a balloon payment can work in your favour as it could help reduce your repayment amount. Just be mindful that there will be a lump sum to pay at the end of the loan term.
Whether you buy a new or used car It probably goes without saying that buying the same model used car rather than new is probably going to mean a lower loan amount purely because the used car will likely be cheaper. The lower the outstanding balance, the lower the repayments!
A Finance One tip:
Having a new car loan could mean experiencing more depreciation in your car’s value than buying second-hand.
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Having a new car loan could mean experiencing more depreciation in your car’s value than buying second-hand.
Contact Finance One today to see how we may be able to help you, too!
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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 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.
Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.
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