Don’t let your bad credit stop you from living a good life!
It is always unpleasant to have a bad credit score, especially when you are in the process of getting a car loan in Australia. But the great news is that it is not an impossible task to achieve!
It is understandable that you can have a financial crisis at a given point in time in life due to any reason, be it unemployment or excessive bills to pay or whatever reason you have had. That is why there are various lenders who provide loans even after bad credit remarks.
Read this guide to find out about the most crucial aspects, possibilities, and measures that will help to increase the probability of success.
What is a bad credit score?
Bad credit score refers to a low rating of credit or poor credit history or record due to default, delay in payment, provision, or bankruptcy. Australia’s credit score starts from 0 up to 1200, where the closer to 1200, the higher credit rating they have. The scores, which are usually below 500, are regarded as poor.
Credit score is about determining the possibility of giving you credit in the market by the lenders. A low score therefore warns lenders that you might default on your loans, and this makes them very selective on your loan application. However, most banks have standard offers for such individuals with bad credit histories in the market.
How do lenders assess bad credit loan applications?
Lenders check various things before they provide you with a loan. Those are:
- Credit History:
They will check your credit history to analyse where you spend and how much. If you have bad credit, the lender will then check what you have done to improve your credit score history.
- Income:
Lender will make sure that you earn a stable income to determine your capacity for repaying the loan.
- Loan Purpose:
You should be clearly able to explain why you need this loan and for what purpose. This can help to strengthen your loan application.
- Loan Amount:
The lender makes sure that you use the loan amount for the desired purpose only.
- Existing Debts:
If the lenders are providing you with a loan, then they will check whether you have any existing debt to pay. If you have one, then this might reduce your chance of getting the loan.
How to apply for a bad credit car loan step-by-step?
- Check Your Credit Score and Credit Report:
Start by checking your credit score. You can use online tools and software to measure it. This will enable you to get an updated idea about your existing credit score and know where you stand.
- Gather Necessary Documents:
Second, gather all the required documents, like car registration documents, ID proof, residence proof, driver’s licence, income proof, and bank statements, to submit with the application.
- Compare Interest Rates from Different Lenders:
Start by searching different lenders. Then compare and contrast the loan offer, terms, and conditions of each lender. Choose the one you like the best.
- Submit Your Application:
Submit your loan application to the desired lender.
- Wait for Approval:
Usually, the lender takes one week to verify all the documents and then approve it. However, there are many lenders who approve the application before that. So, it basically depends on each lender’s policy, and the approval time varies from lender to lender.
What are the tips to improve your chances of getting a car loan with bad credit?
In order to increase your chances of getting hired for the loan, you have to maintain a disciplined approach.
- Reduce Existing Debts:
If you have any existing debt, try to clear it as soon as possible. Existing debts can reduce your chances of getting selected for the loan.
- Save for a Down Payment:
If you have low credit scores, you will be expected to make a down payment for faster approval. This is usually 20% of the price of the car that you are going to buy. However, the more you invest initially, the more likely you’ll secure a lower interest rate because you’re less of a risk to your lender.
- Provide Proof of Income Stability:
Provide employment proof, income proof documents, bills, pay slips, and utility bills to prove to the lender that you are earning an income and will be able to repay your loan.
- Consider Getting a Cosigner:
If you are suffering from bad credit, then keep a co-signer with you who will also be responsible for the loan. When you are unable to make the payment, then the co-signer can take your place and make the payment. He or she can be anyone from your family, friends, or reality.
Try to consider a person whose credit history is good so that the loan can be approved easily.
- Consider Borrowing a Smaller Loan:
Borrow a shorter amount so that you can repay the loan easily without compromising your essential money.
- Avoid Late Payments and Keep Your Credit Utilization Low:
Avoid making late repayments, as this can create a negative impact on the lender. Also, try to keep your debit as little as possible so that it can make up for your lost credit value.
What other car loans could be available to borrowers with bad credit?
- Car dealer financing:
Most automobile companies are engaged in offering in-house financing facilities to the people, and some of them are especially useful for people who are having a bad credit. These programs may be quite suitable since they offer the car purchase and the loan acquisition under one roof.
Dealer financing also tends to feature higher interest rates or more stringent provisions regarding the repayment, so the agreement must be studied and compared with other offers before opting for it. Dealing with the general dealership may also assist you to access a better deal.
- Secured car loans:
In a secured car loan, the car you use to secure the loan is tied to the amount you borrow as security. This means that if you are unable to pay back the amount, then the car held as security will be repossessed. It will lower the risks for the lender, which increases your chances of having your application approved.
Secured credit facilities are generally cheaper to secure than unsecured credit facilities. This option is also known as the full application or the traditional form and is common with banks and credit unions.
- Specialist Lenders:
Specialist lenders are financial institutions that focus on giving credit to those borrowers who have a bad credit status. They know what kind of problems people in this position might face and have special programs for clients. Such lenders usually possess a fairly liberal approach to requirements for clients, though, at the same time, rates are clearly above average due to the higher risk.
They may pay much more attention to your current financial capabilities than the histories of your credit. Such as non-bank financial institutions, which are engaged in issuing and providing services for bad credit loans.
- Guaranteed security:
A guarantor loan typically means a type of loan where the borrower’s family member, close friend, or anyone who trusts the borrower stands as a guarantor. The guarantor promises to repay the loan in case you default; he or she stands as a surety.
This option affords an extra safeguard to the lender, because this increases the chances of gaining better terms than before, such as a low actual rate of interest or a long repayment period. However, it is advisable for you and your guarantor to consider some factors that are inherent to this form of security.
- Peer-to-Peer Lender:
The concept of peer-to-peer, or P2P, lending markets directly links borrowers with individual end investors. This has a tendency of extending more favorable credit terms than the conventional banking systems. The main P2P providing loan services often has no collateral since it is an unsecured form of lending. Nevertheless, it increases the interest rate based on the credit scores of the borrower in some cases. Some of the famous P2P that exists in Australia includes the one that allows the borrowers to have different credit standings.
What are the drawbacks of bad credit car loans?
Though you can get a car loan easily nowadays even with bad credit, it also comes with certain drawbacks for you, as no lender would indulge in a business if they are not making a profit. Some of the barriers that you might have to face include:
- Higher Interest Rates:
Lenders may charge higher interest rates for having poor credit, which can increase the overall fees and costs of the loan.
- Loan Terms:
Lenders might have stricter loan terms and conditions for people with bad credit. This can result in reducing the flexibility and repayment options for you.
- Predatory Lenders:
Be careful of predatory lenders who may grab you into taking the loan by offering discounts and benefits and can later charge you with higher prices and fees.
- Overextending Finances:
Keep in mind that your budget should align with your loan amount, or else you can run into more debts.
CONCLUSION:
Bear in mind that bad credit is not the end of the world. No matter if you are constructing a base budget, saving for a deposit, or reconstructing your credit score, you can design your future. Do not allow the stereotype of a driver with bad credit to ruin your opportunities and hinder your chances of seizing the wheel of a new vehicle and forging on in the next chapter in your life.
‘Car Finance for Pensioners’ is here to provide you with any details regarding car loans in Australia. We understand that without proper information, it can be difficult to find the proper information and take the right step. Our website is specifically designed for people like you who are confused and don’t know what to do next. Check our website to gain knowledge regarding loans, or feel free to reach out to us.
FAQs about ‘Can you get a Car Loan with a Bad Credit?’:
- Are you able to get a car loan if you have been bankrupt?
Lenders do exist that focus on extending credit to people who have been bankrupt at some time. But you may have to show enhanced financial credibility and offer a much bigger down payment.
- What deposit is required for a car loan for bad credit?
The minimum down payment varies, but putting down more (for instance, 20% or more) may help you get approval and limit your loan amount.
- How can I improve my chances of getting a car loan with bad credit?
You can improve your chances of getting the loan by clearing off debts, spending mindfully, having a co-signer, and providing relevant income proof.
- Is it bad for your credit score to have several car loans at once?
Of course, when applying for several loans within a short time, your credit score will be affected. It is always wise to do the research for the lenders that are more likely to approve your application when you apply to them.
- Are there government programmes for aiding taking car loans for bad credit?
There can be situations when some community organisations or government programmes will help, especially if a car is required for getting to work. Check the available local scholarship programmes to know your chances of qualifying.
- Is it possible to refinance a car loan at a later time in order to get a better rate?
Of course, when your credit score rises, the time has come to refinance your car loan in order to get a lower interest rate or better terms. Try to repay your dues on time so as to develop your credibility.
