Media post: Top Tips for Getting a Car Loan When Your Credit is Not Great

Are you in need of a new car but afraid you’ll be knocked back due to bad credit? It’s not the end of the world – many Australians are being accepted for loans with bad credit all the time. The initial downside is that bad credit car loans have a higher-than-average interest rate; but this doesn’t have to last forever. The first step is getting a car loan when your credit isn’t great. Here are our tips for getting approved the first time.

First, check your credit

You have a right to free yearly access to both your credit score and credit history. Your credit history should be checked with a credit reporting agency like Equifax, Experian, or illion. These agencies offer other value-added services, such as paying them to alert you if someone is trying to check your credit against your wishes to prevent identity theft for example.

If your credit score comes back with a score below 600 (out of 1000 or 1200) your credit is deemed “below average.” But there are ways to obtain a car loan with bad credit.

Can you come up with a down payment?

This is a very important tip: if you can save up a deposit for your car, especially a used one, a lender or broker for car loans will probably be more flexible when considering you for a loan. The down payment should be at least 10-20% of the car’s value. At this point, you should have a short-list of what you intend to buy.

A deposit relieves part of the lender’s risk as you won’t need to borrow as much if you went in with nothing.

Paying off smaller debts, or consolidating debts

Before looking for a car loan you should aim to pay off lesser obligations such as credit card balances first. If you are being hindered by minor high-interest loans, debt consolidation may be an option for you.

Debt consolidation entails consolidating these small, high-interest debts into a single loan. This means you pay off your credit accounts in one go (which is excellent for your credit score over time) and pay off the loan each month until you’ve cleared it completely.

Gather evidence of good financial standing

Including current bank statements and employment records with your application greatly increases your chances of approval. Most sorts of loans often require a solid income or long-term job history. If you can additionally demonstrate that you’re working to pay off debts, avoiding “buy now, pay later” services, and living within your means, lenders will consider your application more closely; and perhaps offer you a more competitive interest rate.

Do your research – don’t apply until you’re certain

A formal credit check conducted by a lender or financial company is logged on your credit history. The more credit checks you obtain, the worse it seems. That’s because you appear to be in desperate need of money – which raise major concerns for lenders. Get as many quotations as you like, but don’t consent to a formal credit check until you find a lender, or ideally, a broker who has found a suitable loan with a high chance of approval.

Remember: brokers want to see customers get approved. Be honest and upfront and they are in a better position to help. Once you start paying off your loan in full and on time, your credit score will start to rise. There’s always a silver lining!