I have defaults on my credit file …….will I be able to purchase a car????
There are financiers who provide bad credit car loans and specialists who can source them on your behalf, however your eligibility will be determined by the nature and the severity of the credit impairment. Keep in mind a car loan is securitised by the vehicle and less risky than an unsecured loan.
Financiers who provide this type of lending have the following policy regulations
They can accept both paid and unpaid default.
Paid defaults are preferable, and the greater the time since the payment was made the more favourable it will be to the lender.
Unpaid defaults up to $5,000 can be accepted, but the explanation around the reason they have occurred must be strong
Multiple defaults and a history of ongoing credit issues will be of great concern. Your application may not be declined however it would need to be very strong in all other areas
Telco defaults will be considered, unpaid and providing they are under $4000
Motor finance defaults are acceptable, even if there has been a repossession involved, however they must be older than 12 months and the arrears must be paid
Home Loan arrears will not be considered favourably
The lender will treat judgements in the same manner as defaults although they are seen as being more severe
Discharged bankrupts will be considered once they have been discharged for 12 months
Unlike mainstream car loans, the policy is not hard and fast. Be prepared to explain what circumstances created the credit impairment. Extreme credit impairment may have an acceptable explanation and the lender will apply a more liberal assessment of your application if this is the case.
When applying for the loan, ensure the accuracy of your information. Inaccurate information will be identified and detract from the robustness of the application. Keep in mind if you have a blemished credit history, the lender begins with the premise that you may be a greater risk in the future. Hence to then have inaccurate information in your application, could lead to a declinal in an application which otherwise might have been approved. The types of information which is typically omitted or captured incorrectly could encompass the following:
Failure to disclose bankruptcy or debts – incorrectly believing that because they are no longer showing on your credit file the lender will not be aware of them. Lenders use multiple sources of checks to look at applicant’s history and while a record of a bankruptcy and the corresponding debts may have been removed from your credit file, there is a permanent record of them retained by the National Personal Insolvency Index (NPII). It is not uncommon for a lender to conduct a search of this nature where there is an applicant with any level of impairment
Employment and residential history dates
The number of dependants which you have
If you are aware you have credit impairment, ensure you have accessed a copy of your credit file prior to approaching the specialist and that you are aware of the level of your impairment. If you identify errors correct them prior to making application as it could result in lower interest rates, fees and reduced deposits.
Lenders will apply a rate for risk approach in determining the interest rates, the greater the credit impairment, the higher the interest rate. Interest rates can vary widely – 8% up to 29%.
The greater the severity of credit impairment will also have an impact upon amount of deposit you will be required to put in. Deposit could range from 20% – 50%. Deposit requirements may however also be determined by the type of vehicle you are seeking to purchase. Purchasing a regular, rather than a unique or rare vehicle can keep reduce the deposit. Purchasing a non-regular vehicle can increase the risk rating and deposit, because should the vehicle need to be re-possessed it would be more difficult for the lender to on-sell.
You can see the variation in rates and deposits can vary widely and so you should do your research and gain an understanding of how interest rates and deposits vary based on your level of impairment.
In assessing your decision to proceed with bad credit car loan, know that it is a short term solution while you work at rebuilding your positive credit file.
