Bad Credit Car Loans
Bad credit car finance has always meant apprehension among potential borrowers. After all, credit health is something that lenders watch out for when approving loans.
If you fall into the “bad credit” category it doesn’t necessarily mean that you’ll be unable to secure a car loan. While it’s common belief that having a bad credit score means a low chance of approval, there are lenders that provide products specially designed for bad credit clients.
Bad credit car loans exist to finance a car purchase, with both secured and unsecured car loan options for borrowers. Australians needing financing but a less-than-ideal credit history won’t have to wait to improve their scores to buy a vehicle.
Before going ahead and filling out a bad credit car loan application, let’s discuss how it works, what are the top considerations when taking out this type of loan, and how to apply.
What is a bad credit car loan?
A bad credit car loan is a type of financing that does not follow the standard lending criteria that mainstream banks require. This loan is offered by various lenders, including boutique lenders, credit unions, and online lenders, and is tailored to accommodate clients with bad credit.
Bad credit can happen to anyone, regardless of financial responsibility. A good number of borrowers may get caught in a bad situation due to misfortune – an unexpected job loss, divorce, accident, or illness – any of these things can turn one’s finances sideways.
Hence, a bad credit car loan is an important solution for those who need financing for a new or used car. It’s true that lenders look at credit scores, but it is only one of many factors when vetting who is suitable for a loan. Bad credit is not the end-all be-all; if the rest of your car loan application info meets the lender’s criteria, they might still approve the loan.
Even though you may not access the most ideal interest rates and other conditions that a borrower with good credit would have, you’ll still have the option to have a car loan that works for your needs.
What are the features of a bad credit car loan?
Lenders will have varying rate offers and terms, but here are the common characteristics to expect in bad credit car loans:
Higher Interest Rates: One significant characteristic of bad credit car loans is higher interest rates. Lenders charge more in interest to offset the higher risk associated with lending to individuals with poor credit.
Shorter Loan Terms: Bad credit car loans often come with shorter repayment terms compared to loans for borrowers with good credit. This means you’ll need to repay the loan over a shorter period, resulting in higher monthly payments.
Loan Amount: The loan amount you qualify for with bad credit may be limited compared to what you could secure with good credit. Lenders may require a larger deposit to minimize their risk.
Secured vs. Unsecured: Like other loan products, bad credit car loans have the secured or unsecured option. Secured loans need collateral, which can be in the form of assets. Usually, the car itself serves as collateral. Opting for a secured loan can help secure a lower interest rate. Unsecured loans do not require collateral but typically have higher interest rates.
How will lenders assess my bad credit car loan application?
Lenders have their own assessment and eligibility criteria for car loans, which consider several factors in combination. These include:
Loan amount – Seeking a lower loan means a higher chance of getting approved, but it still depends on an overall assessment of all pertinent factors.
Credit history – This information gives lenders an idea of your track record as a borrower. Borrowers who are deemed ‘bad’ may get declined, but it’s not an automatic rejection from lenders if the other factors in your application mean you can manage the loan repayments.
Income – Lenders naturally want to know how much you earn regularly, as it signifies if you have enough income to pay off the loan. Income includes monthly salary as well as investment earnings and benefits. In the case of joint application car loans, the combined income is assessed by all applicants (e.g., both spouses). And for business owners who don’t have fixed monthly earnings, the revenue should be sufficient to manage monthly repayments.
Income vs. expenses – Regular expenses minus your income equals disposable income. Lenders factor this to determine if you can make repayments after rent, utility, and food costs.
Existing debt – Aside from the car loan application, most clients will have other loans to repay, such as credit card debt. Banks will factor this as well.
Lenders do not disclose what type of assessment algorithm they use to determine what combination of factors will make a borrower suitable for a car loan, but usually, a high and stable income could overcome bad credit history given an appropriate loan amount.
Does bad credit mean unfavorable car loans?
A common misconception that people have with bad credit car loans is that it offers unattractive deals. Many believe that people with bad credit often get terrible deals and extremely high interest rates. If
you know what you are looking for and where you are looking for it, you can always find great deals at reasonable rates.
Bad credit loans, low-doc loans or unsecured loans are just among the few examples of loans that people with bad credit scores can apply for. Given that these are offered by specialist lenders, it will take a bit of time searching for the right loan. Improve your chances of loan approval by seeking professional broker services to ensure you have access to a wide variety of lenders that can provide negotiable loan terms and rates.
Learn more about bad credit car loans
While having a lower credit rating may impact your loan application, it’s not the only factor assessed by lenders in Australia. Securing a car loan is still possible with a bad credit car loan, as it is tailored to individuals who need financing for their new or used vehicle.
By understanding the terms, comparing offers, and diligently managing your finances, you can navigate bad credit car loans and access your preferred car right away. Our car loan brokers are here to help you compare loans, prepare your application, and support responsible financial behavior. Let’s start today.
