If your credit record has shown information that is of concern to the lender, you may get skeptical of getting approval for car loan in Australia. However, while your chances may seem slim, it is still possible even with poor credit score. Thus, it is always a good thing to apply for loan even when the credit record seems poor.
Will you qualify for Bad Credit Car Loan?
Bad credit is an obstacle if you’re looking to get a car loan – but it isn’t a total no-no situation.
While many lenders would refuse to provide you a loan or charge higher interest rates, other lenders are quite comfortable with risks inherent and they offer loans to people with poor credit history. They’ve formed lending policies specifically meant for people with bad credit scores.
To become eligible for the financing, you’ll have to satisfy responsible lending policy of lenders and you’ll be able to demonstrate comfortable management of repayment of car loans.
How Lenders Assess Loan Applications for Poor Credit?
Legally the lenders can’t provide loan when it isn’t suitable for burrower, for example, when the lender believes that you’ll not meet repayments. This is because, when an assessment of loan application happens, lenders typically consider different factors. When all these factors are put together, it helps them in determining whether the loan suits the person who is applying or not.
Such aspects can include but are not limited to:
- Income: Lenders typically ask about breakdown of your earnings in their application for getting an idea about your disposable income for paying off the loan. When it is joint application with spouse, for example – the lender considers combined income of the applicants. The income can also include benefit payments, salary, and investment earnings.
- Other debts: When you’ve behind other loans or have unsettled credit card bills, the lender would most likely consider it while assessing.
- Expenses: The amount that you’re spending on daily basis like living expenses like bills, rent along groceries would be considered.
- Credit History: While you’re getting a poor credit loan, a lot of lenders would still check the credit record for knowing your loan track record. Some lenders can still reject loan applications or might approve it, depending on other essentials of the loan application.
- Loan Amount: The amount of money that you want to borrow can also be considered. Let’s suppose if you’re looking to borrow huge sum for purchase of new vehicle, or a modest amount for second-hand car, the lower amount loan has high chances of approval. However, this would depend on all-round assessment considering other applicable factors along with personal circumstances.
How can you get Car Loan with Poor Credit?
Similarly to giving a job interview, you’ll need to make sure to present yourself well and be honest about everything. You can’t lie to financial institutions in Australia. With these tips, you move your approval chances forward.
- Knowing your current credit rating: After knowing it moving on would be worthy! (when the car financer is charging too much interest than expected).
- Sort out your Funds and Bank Account: Among the main things that your lender will check for is your bank statement for examining your capability to save money – even when the amount is little. They’ll also check discretionary spending like how much you’ve spent in trading, gambling account, Netflix, meals, etc.
- Have employment: Another major factor to determine creditworthiness is having a regular source of income. With a steady full-time job, you’ll boost your worthiness to pay back your loans.
- Ensure that you’ve pain other debts: When you’ve got debts mainly unsecured ones, like personal loans or credit cards, it would be sensible to settle those before you apply for a new car loan. This demonstrates to the lender that you’ve got a reliable track record to pay off your debts.
Types of Car Loans Available for Bad Credit Burrowers
No credit check car loans. Different car loans available for borrowers having poor credit history are:
- Bank Loan: A few traditional lenders like credit unions and banks provide loans to applicants having bad credit, and these are subjected to above-discussed criteria. However, it could be quite difficult with strict criteria for lending for reducing customer risks defaulting on loan.
- Dealer finance: Finance offered through car dealers can work in a great way for bank loans. A notable difference would be that loans from dealers would involve borrower requirement of making balloon payment for owning the car.
- Guarantor loans: applicants who aren’t eligible for burrowing money for purchasing a car can get approved when someone –a member of the family acts as a loan guarantor. The person can also take responsibility for paying back loan when borrower defaults.
- Unsecured or Secured Loans: Secured car loans, where car gets sold by lender for repayment of loans when borrower defaults would be seen as representation of less risk to burrower compared to unsecured loans. As an outcome, lenders can also offer car loans to ?€poor credit’ applicants when loan gets secured through the bought vehicle.
Policies of lenders can vary, and you can consider checking with the selected lender before you apply. Even after getting approved to get unsecured car loan, you’ll always maintain the possibility of lender bringing you to the court for reclaiming any losses. In such situations, the credit rating also majorly gets impacted.
Would you have to pay more for car loan with poor credit?
When the borrower gets approved and it is of higher risk to lenders, they can have high-interest rates compared to borrower having good credit score. For example, a few personal loans for car purchases make use of risk base price assessments.
It means that the loan issuer takes into account different factors like credit score before they decide on the interest rate applied to the loan. The credit record of the borrower is a factor for determining the range of interest rate, but it can also rely on whether you’re purchasing an old or new car, along with other variables such as financial standing, loan amount, etc.
Car Loan interest rates in Australia typically start from 3.70% p.a. (4.50% p.a. comparison rate) till higher rates of 20.25% p.a. (comparison rate around 23.30% p.a.) for purchase of new vehicle with the loan amount being $30,000 with 5 years loan term in NSW.