Borrowers Guide to Bad Credit Car Loans

Posted by John Paul Mendez on 4 April, 2017

bad credit car loans.jpgIs your credit rating keeping you from securing a car loan from banks and other financial institutions? There are many people in the same circumstance. Fortunately, some lenders look beyond the credit score in order to justify an approval. Interest rates may be a little higher but it is better than not getting approved for a loan at all.

If you want to get started and speak with a finance broker, contact us now.


What are the factors that affect your credit score?

A bad credit score is not something that magically appears out of nowhere. It is a result of financial decisions you may have made in the past. Some of the things that affect your credit score include;


- Late bill payments (electricity, mobile, gas, etc.)
- Late/Defaulted credit card payments.
- Bankruptcy.
- Debt agreements.
- Credit card balance and payment history.
- Late rent payments.


There are other factors, however, these are the most common and late payments in particular, should be avoided at all costs. Many people have bad credit simply because they forget to pay their bills on time. One solution is setting-up automatic payments. This way, you won’t miss a due date.


What are bad credit car loans?

Also called second chance car finance, bad credit car loans are a product that helps people with bad credit secure a car loan. It may seem impossible to get an approval if your credit rating is bad but lenders are in the business of lending so they do want your business. You just have to show them that you are capable of paying back the loan despite having a bad credit score.


One great tool that you can use in order to calculate the real costs of owning a car is the ASICs MoneySmart Cars App. Knowing these costs beforehand is really helpful. You do not want to be missing out on repayments and making further negative impact to your credit score.


What is the process in securing bad credit car loans?

The first step is to get a copy of your credit score in order to know where you stand. You can then plan and take the necessary steps to make your immediate credit history more appealling to lenders. Here are some good starting points:


-  Pay your bills on time.
- Pay your credit card bills on time and keep your credit card debts at about 30% to 35% of your credit limit.
- Save some money in the bank.


It could take some time. However, it increases your chance of getting approved. In addition, you are also fixing your credit score in the process.


The next step is to use your tidied up payment history and financial statement to convince the lender that you are capable of paying them back. Be truthful if the lender asks about your credit score. There is no need to make up stories because they will find out and you will decrease your chances of getting approved.

Talking with a knowledgeable finance broker makes the process a lot easier. If you want assistance right away, contact us now.


What are the interest rates on a bad credit car finance?

Interest rates vary from lender to lender and depend on individual circumstances.


Expect a higher interest rate because of your bad credit score. That is the sad truth that you have to deal with. It is part of the process of regaining a good financial standing. Pay the monthly repayments on time and potentially the interest rate on your next purchase will be considerably lower.


One tip in order to secure a lower interest rate is to check your credit report for errors and dispute them. Once corrected, your credit score could potentially increase. Another tip is to see whether you have other financial strengths that you can use to get a better deal.

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Bad credit car loan for used cars

You can use a second chance car finance to buy a used car but the loan amount will depend on other factors such as the age and condition of the car.


A finance broker can help you get a rough estimate of how much lenders will finance based on the condition of the car. Having a finance specialist with you whilst shopping around is a big help.


Bad credit car finance for self-employed

It is possible to get approved even if you are self-employed. All you need to do is provide proof of income and prove your ability to pay the loan back.


If you are self-employed and will be using the car for business, you have other options that will help with tax benefits such as Chattel Mortgage, hire purchase, or lease.


What are the chances of getting approved?

We will review your credit history and financial statements and advise you on the steps that you need to take. Depending on your status, we will advise you to either continue with the car loan application or put in on hold whilst you work on your credit history for a while in order to prove your ability to pay.


Under the National Consumer Credit Protection Act, a lender must ensure that the loan applicant has the capacity to pay before a loan can be approved.


1800Approved is an award winning finance broker - Australian's Broker of the Year for 2016 !  We have helped tens of thousands own their dream car, boat jetski or caravan and/or finance business equipment. Let us help you finance your dream car today. Call us at 1800 277 768. No obligation.



Topics: Car loan, General