Around 90% of all car purchases in Australia involve financing. That means that most people get loans when buying vehicles.
While a person’s credit matters a lot when borrowing money, it doesn’t have to stop you from getting a loan. You can get a car loan with bad credit if you need one.
So, it’s essential to know that having bad credit doesn’t automatically preclude you from getting a car loan, but it might take a little extra work.
Here is a guide to help you qualify for an auto loan when you need to buy a car but have bad credit.
Why Your Credit Matters
Before you learn how to get a car loan with bad credit, you might want to find out why your credit matters. Credit matters with all loans, as it tells lenders about your risk level.
A borrower’s risk level is something that lenders take seriously. While lenders might accept applications from anyone who needs a loan, they won’t approve every application they receive.
Instead, they review applications to look for specific things, including a person’s risk level.
An applicant’s risk level tells the lender one vital thing – the level of risk the lender assumes by offering the loan.
People with high credit scores pose low risks to lenders, while people with low scores pose high risks. Your credit score tells the lender details about your ability to repay the money you borrow.
People with poor credit scores might not repay their loans. As a result, a lender might use caution when issuing a loan to someone with a low score.
High credit scores prove to lenders that borrowers are responsible. High scores show that people manage their money well and pay their bills on time. Lenders have few risks when issuing loans to people with high scores.
As you learn more about the importance of your credit score, you might want to check your score before applying for a loan. By checking it, you can know exactly where you stand.
How Credit Scores Work
When you check your score, you might have even more questions about it. For example, you might wonder how it ranks or why it’s so low. You might wonder how credit bureaus come up with the scores.
In Australia, you can find three credit reporting agencies that track and rank credit scores. Each bureau uses a different system, but they operate similarly.
The scores range from 0 to 1,000 or 1,200, depending on the bureau. A score of 0 is the lowest score you can have, and 0 represents the worst credit possible.
If you have a score of 1,200, you have a perfect score. Most people range somewhere in between 0 to 1,200, but what score is bad credit? The answer depends.
In most cases, a bad score is one that is under 510. If you have a score over 832, you have excellent credit. Your credit score affects your ability to get car loans and other loan types.
Here is a breakdown of the factors that affect your score:
- The history of your credit
- The types of accounts you have
- The loans you’ve applied for
- Your repayment history
- The balances of your accounts
While there are other factors that might affect your score, these are the main ones. The downside to your credit score is that it tracks information for many years. Most entries remain on your report for ten years.
As a result, it takes time to rebuild your credit after negative postings occur. If you always handle your credit wisely, you’ll likely have a high score, making it easier for you to qualify for loans.
If you find out that your score is lower than you thought, you can still qualify for an auto loan. Keep reading to learn how this works.
Factors That Affect Your Ability to Get a Car Loan
So, with bad credit, you might wonder how you can get a loan. The truth is that when lenders offer car financing, they view many factors before deciding whether to issue the loan or not.
Here are some of the other factors that affect your ability to get a car loan:
Your Income
Most lenders look at a person’s job and income when reviewing auto loan applications. How much do you earn? Is it at least $25,000?
If you earn this much money, you will be one step closer to qualifying for an auto loan, even if you have bad credit.
The Down Payment You Have
Lenders can reduce their risk levels by requiring higher down payments on car purchases. Therefore, if you have bad credit, you can improve your chances of getting approved if you offer more money down.
You might wonder how much you’ll need to put down. You can ask a lender for more information, but you should aim to have at least 10% if possible.
The Car You Choose
Did you know that the car you choose might also affect the lender’s decision? If your credit isn’t perfect, you might want to limit your search to used cars under a certain price range.
For example, you might want to shop for a car for around $10,000 instead of a $60,000 vehicle. Shopping for a more affordable car will make getting a loan a lot easier.
Your Age
Lenders also have age requirements when issuing loans. Most lenders won’t issue loans to people under 18. Therefore, if you’re only 16 or 17, you might need to wait until you turn 18.
Your Driver’s License Status
A lender will also ask to see your driver’s license. You must have a valid license to buy a car with an auto loan. Lenders may accept provisional licenses, but you should ask about this if you have one.
Tips for Getting a Car Loan With Bad Credit
Now that you understand more about credit scores and risk levels, you might wonder what you can do to qualify for a car loan. Getting car loans with bad credit isn’t as difficult as you might think.
Here are the primary steps you can take to qualify:
Gather Your Information
If you want to know how to get a car loan, you should start with the first step. This step involves gathering your information.
You’ll need your driver’s license, pay stubs, and insurance documents to apply for a car loan. Getting these things ready can help you speed up the loan process.
Round Up Your Down Payment
Next, you’ll need to get your down payment ready. Do you have plenty of money for it, or should you save up more money for a few months?
Remember, you will face fewer challenges with qualifying for a car loan if you have a significant amount of money to use for your down payment. You may want to aim for $1,000 or more before applying for a loan.
Find a Lender That Specializes in Bad Credit
The next step is the most important one of all. You must shop for a lender that specializes in issuing loans to people with bad credit. You can find all kinds of car finance lenders, but not all of them offer loans for bad credit.
Seek Help From a Friend
If you have any problems finding a lender, you could always seek help from a friend. For example, you could borrow some money from a friend to have a higher down payment. You might also ask a friend to co-sign for your loan.
If you follow these tips and search for the right lender, you will find one that is willing to give you a car loan.
Fix Your Credit to Make It Easier Next Time
After getting a car loan, you might want to take some steps to make finding a car loan easier the next time you need one. Here are a few things you can do to improve your credit:
Pay All Your Bills On Time
One habit to develop is paying your bills on time every month. If you consistently do this, it will help you build a positive repayment history.
Pay Off Debts
Secondly, pay off debts you have. When you pay off debts, your score will increase.
Fight Inaccurate Items
Finally, you have the right to dispute things you find on your credit report that are not accurate. If you see any issues with the items on your report, fight them. If you win the disputes, your score might instantly improve.
Shop for a Lender Today
Do you need a newer vehicle? If so, you can get a car loan with bad credit if you follow the tips in this guide.
Having a car is vital for most people. After all, your car gets you to work and back, and you shouldn’t let your credit score stop you from applying for a loan.
If you enjoyed learning about car loans for bad credit, you’ll probably like other articles on our blog. You can check out the rest of our site to learn more.
