Buying a car is a big deal, often requiring a big financial commitment.
If you are looking at accessing car financing to get behind your next set of wheels, you’re probably wondering what credit score you need to apply for a car loan.
Credit scores can be confusing; we get that. That’s why we’ve written this guide on what credit score you ideally should have to be able to buy a car.
Understanding credit scores
Before we jump straight into the credit score deep end, let’s take a moment to go over how credit scores work.
In Australia, our credit rating, also referred to as credit score, is a number used to represent your reputation as a borrower of money. Three main credit bureaus are responsible for determining your rating and will range anywhere from 0-1,000 or 0-1,200, depending on the credit bureau.
An excellent credit score typically sits anywhere from 800 to 1,200 points. A good credit score is upwards of 600; any score usually under 500 is considered a low credit score. A bad credit rating may not necessarily reflect your current financial health, but, unfortunately, if your credit file has some blemishes, it can be tricky to access the credit you need to buy a car.
Are you wanting to apply for a car loan?
Your credit reputation lets credit providers with an Australian Credit Licence gauge if they are willing to approve your application or not. Usually, the higher your rating or credit score, the more chance you have of being approved. Not only that, but sometimes those with a sound credit history will be offered a more attractive interest rate or a better deal, than those with a poorer credit history.
While you may find it more challenging to borrow money through traditional lenders, car loans are available through Finance One for those with a poor credit score. Our car loans for people with bad credit have been developed to provide many Australians who may find it challenging to access the finance they need to get them ahead.
Apply Online NowWhat causes bad credit?
When you take out a credit product, such as a loan or credit card, or even a post-paid mobile phone plan, your conduct around your account will reflect on your credit file. If you miss payments, default on the loan (which means missing repayments for more than 60 days), going into a debt agreement or bankruptcy can all lead to a bad credit score.
However, if you’ve never had a credit product before or are applying for a personal loan or car loan for the first time, it might surprise you that you could have a low credit score from the get-go! This, of course, hasn’t been caused by missing repayments, but having no credit history can be seen as risky in the eyes of the lender — this is due to the lender being unable to ascertain your behaviour with financial repayments.
Other actions that many people don’t realise can lead to a bad credit score are:
- Applying for too many credit products in a short time, such as payday loans.
- Having too many credit accounts open at once or having a credit limit that’s too high for your reasonable affordability.
- Having no credit products open or a short credit history.
- Overdrawing a bank account.
- Late payments on utility bills such as water, council rates, electricity or gas bills.
- Incorrectly reported information by a service provider.
Court judgements in relation to outstanding debt or if you have entered into a debt agreement.
Can I access my credit report before I apply for a car loan?
Credit reporting bodies in Australia are legally required to provide you with access to a free copy of your credit report once every three months. This is great news for borrowers who want to keep an eye on their credit reports or understand how their financial conduct is affecting their credit rating.
Given that your prospective credit provider will be looking at your credit report when they run a credit check as part of the car loan application process, it pays to get a free credit report to see whether there is any information on there that might need to be corrected.
Remember that free credit reports won’t necessarily tell you if you’re going to be approved or declined for a loan, as each lender will have its own set of criteria.
The credit score to apply for a car loan that you should be aiming for
While there is no fixed minimum credit score requirement for accessing a car loan, most standard lenders will look for a credit score of around 600 or higher. The higher credit score an applicant has, the better chance of approval they have, and they will often have access to more attractive interest rates than those with bad credit scores.
What to know before applying for a car loan with a poor credit history
So, what happens if your previous payment history has tarnished your credit score? The good news is that you don’t necessarily need a high credit score to apply for car loans. This is because car loan eligibility criteria doesn’t solely rely on credit ratings.
Here’s what you should know before applying for a car loan with a lower credit score:
You may pay a higher interest rate
If you’ve been researching your personal loan options or are experienced at borrowing money, you’ll be familiar with the fact that interest rates will vary depending on your financial situation. How much interest you pay depends on your loan term, interest rate and loan amount. So, remember that the best car loan for you may not solely come down to the best interest rate.
Access secured car finance
Car loan rates tend to be lower than other personal loans, as they are often ‘secured’. This means that the car your are purchasing is offered as collateral against the loan, which reduces the financial impact on the credit provider, should you default and be unable to repay the loan.
Strive for financial stability before applying
We understand that the allure of a new car can be enticing. Still, if you don’t need a car immediately, it can pay to strive for more stability in your financial situation before applying for new credit. While 6-12 months may not have a dramatic impact on your credit score, proving your financial discipline to a potential lender can make a big difference.
Examples of better stability include:
- Paying your bills on time.
- Holding a secure form of income (even if this is Government benefits or self-employed income).
- Placing a regular amount of money away each week, fortnight or month. Even if this is only a small amount of money, it will bode well when indicating to a lender that you can meet the monthly repayments.
- Pay down or pay off any existing debts such as credit cards or other smaller loans (this includes Buy-Now-Pay-Later schemes).
Seek out bad credit lenders
While you may find it more difficult to borrow money through traditional lender and banks, car loans are available for those with a poor credit score through Finance One. Car loans for people with bad credit have been developed to suit many Australians who find it challenging to access the finance they need to get them ahead.
Bad credit?
Work with experienced finance specialists who look past your history and can offer you the finance you need to get the wheels you want.
Contact our team to learn more about how we could help you access the finance you need for your next car, despite your credit score.
Talk to us NowHere are some frequently asked questions (FAQs) about credit scores when accessing car loans
What is the average credit score in Australia?
According to Equifax, the average credit score in Australia is currently 846, however, as we mentioned above, a good credit score is usually considered any score over 600.
What is the minimum credit score for a car loan in Australia?
When accessing bad credit lenders, such as Finance One, they are experienced in working with borrowers with very low credit scores or, no credit score at all. There is no set minimum credit that you need to apply for a car loan if you’re using a specialist lender, however, your personal and financial situation will be assessed to ensure that you can support the loan and your ongoing obligations.
Does my credit score affect anything else?
Your credit score can impact all of your borrowings, including accessing a post-paid mobile phone plan and more. For example, your credit score will impact any loan applications that involve a ‘hard credit check’. A hard credit check is a credit check that is recorded in your credit history and can also impact your credit score further.
A soft credit check, on the other hand, is when a company or organisation checks your credit report (with your permission), but you haven’t applied for credit. This includes when you apply for a rental property, apply for an insurance policy, and even prospective employers may check your credit history.
What interest rate will I pay on car finance with a poor credit rating?
Interest rates on car loans will vary, depending on the lender, and the specifics of your credit score. Generally speaking, applicants with lower credit scores can expect to pay higher interest rates than borrowers with a good credit score.
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
*Loans between $50,000 – $75,000 must be asset backed.
**48 hour approvals subject to satisfactory documentation being provided to assess the application.
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.
