Bad Credit Car Loans Australia

Your credit history is just one of the factors lenders consider when deciding whether to approve a car loan application. It means if you’re applying for a car loan with bad credit, you should still have a good chance of approval.

The key is making sure your overall application meets the lender's criteria. Here are some ways of doing that:

Apply with a specialist lender

Mainstream banks usually don’t offer bad credit car loans. You’ll have a better chance of approval with a lender who specialises in lending to borrowers with defaults or other issues in their credit history.

Understand lenders’ rules

Even specialist bad credit lenders will have certain criteria relating to credit history. For example, some accept borrowers with certain kinds of defaults (e.g. paid defaults) but not others. Avoid making applications if you’re not confident that you’re eligible.

Remember, applying and being declined can further damage your credit record.

Apply for secured finance

A secured car loan represents less risk for a lender, as the vehicle you’re buying acts as security. Lenders may be more willing to offer secured finance to bad credit borrowers.

Get your documents ready

The lender will ask you to provide documents so it can assess your overall financial situation. That usually means payslips (your two most recent), bank and credit card statements (covering the last 90 days at least). If you’re self-employed, the lender may ask to see tax returns to show how much you earn.

Bear in mind lenders will look at these documents closely. It can be a good idea to audit your own bank statements for any activity that may raise flags for lenders, such as dishonoured payments, being overdrawn or spending on gambling.

Apply for pre-approval

This can be a good way of finding out if a lender will be willing to give you a car loan (and for how much) before you start shopping for cars. With pre-approval secured, you can be confident of your ability to get finance and what your budget is.

Contribute a deposit

While it’s generally not a requirement on bad credit car loans, putting your own money down as a deposit towards the cost of the car is a positive signal to lenders. At a basic level, it demonstrates that you have been able to save up for the deposit. A deposit also reduces risk for them and for you it means your loan repayments will be lower.

All borrowing involves a degree of risk and if you have had issues managing credit in the past, the risk can be higher. However, if you’re careful with your application, a bad credit car loan can be less risky than other forms of finance, as the loan is secured.

To minimise risk further, you can consider:

• Borrowing a lower amount (e.g. consider a used car)
• Go with a short loan term so you’ll be debt free sooner
• Looking into alternative options like a novated lease which is linked to your employer and reduces risk further for lenders
• If you’re unsure, wait until your credit score has had time to approve before applying