Are you in need of financing for a vehicle but have a bad or poor credit history? Perhaps you just haven’t built up a credit history, or maybe you have some debts in your past. Whatever the case may be, you could qualify for a bad credit car loan.
Before you start applying for loans, check out all your options and make sure you choose the right type of loan for your needs. Always check your credit history to help you determine what options will be open for you and to help you negotiate the right terms for your needs. If you find a credit check shows poor credit history, check with your financial advisor to see if a bad credit car loan is right for you.
What is a Bad Credit Car Loan?
Bad credit car loans are an option for people with a less than stellar credit history. If you are having difficulty getting a loan to finance your vehicle needs through the bank or other lender options, this is likely due to your credit history. This poor credit could be due to numerous reasons. If you are new to Australia, or you just don’t have a substantial credit history, this can make getting a car loan difficult. If you have filed for bankruptcy in the past, or you have credit defaults or Part IX debt agreements, this will adversely affect your credit score.
With a bad credit car loan, you have a chance to get the finances you need. Options will depend on the actual state of your credit history as well as your employment history. With a bad credit car loan you can expect interest rates higher than the average loan, due to the risk involved, but if you cannot qualify for other loan options this may be your way to get into the vehicle you need or want.
How does a Bad Credit Car Loan work?
With a bad credit car loan, the financier is taking a risk on your ability to make repayments. This will mean higher interest rates attached to the payments, which can be lowered based on the amount of down payment you are able to pay for the car. The amount of money you can borrow will be based on your actual credit score, your employment history and your residential history.
The financier will look at all these criteria and work out repayment terms with you based on the value and age of the car. Make sure you budget accurately for the repayments as failure to make payments can result in repossession of the vehicle and will further decrease your credit score. Once terms are agreed on, the financier will pay out the sums required for the purchase and you are able to take ownership of the vehicle. Most financiers will require you to make a purchase through a dealership rather than a private purchase.
Car Loan options
There are two basic options for a car loan, secured and unsecured. Your ability to take advantage of these options will depend on your credit score and the type of collateral you would be able to put up against the loan.
With a secured loan, you would need to put up some form of property as collateral for the loan to ensure payment. This collateral will most likely be the vehicle being purchased with the loan. If there is a failure to make repayments, this collateral can be confiscated and sold by the financier to make up the money loaned.
With an unsecured loan, there is no collateral required. This type of loan is usually based on credit scores, and therefore is less likely to be used for someone looking for a bad credit loan as it would be a larger risk to the financier.
Bad Credit Loan Interest rates and fees
Interest rates for a bad credit loan will depend on many factors. This includes the desired loan amount, the type of car being purchased, employment history, length of residence, and, of course, credit history. Due to the risk involved with loaning to someone with a poor credit history, the interest rates will be higher than average loan interest rates.
Down payments can decrease the amount of interest paid on the loan, so if possible make sure you have something saved for a down payment. The ideal amount would be 20% of the purchase price. Interest rates can also be decreased with a shorter loan period, so the larger the payment you can reliably make, the lower the interest rates will be.
People with poor credit are the most likely to apply for a bad credit car loan. To qualify for the loan, you will need to show an ability to make the agreed upon repayments. When applying for the loan, make sure you have completely and accurately completed the application. You will need the following information to check if you qualify:
- Accurate and up-to-date credit profile
- Bank statements going back three to six months
- Proof of residency
- Proof of employment
Before applying for a bad credit car loan check your credit profile and make sure that there are no mistakes. This also allows you to check for unused accounts that may still be open, allowing you to close those out. If possible, work to improve your credit score before applying for the loan. It is best to have a score of at least 600 to get the best terms.
How to apply for a Low Doc Loan
When completing the application, you want to make sure you provide all the relevant information. Failure to provide accurate credit history information will likely be discovered and can result in being declined. Be as truthful and accurate as possible to ensure your application will be processed. Make sure you have all the necessary documents to avoid delays.
- To show financial stability, try to have six months of bank statements with a good account record.
- Proof of at least one year of employment is best to show stability and ability to make repayments.
- Proof of long-term residency is best to secure a loan. If you must move around frequently for your job, make sure you can show proof of this.
- A down payment, if possible try to make this 20% of the purchase price.
- Make sure to supply detailed information about the desired purchase to help determine the terms of the loan. Keep in mind that many financiers will require you to go through a dealership to purchase the vehicle.
Before Applying for a Bad Credit Car Loan
Before you decide to apply for a loan, make sure you check out all your options and determine the best loan for your needs. Multiple loan applications can adversely affect your credit score and make it more difficult to qualify for a loan in the future.
Check your credit history before applying for a loan. You want to make sure that all the information is up-to-date and correct so your credit score is accurately portrayed. Take care of any outdated addresses or any incorrect information. This will also allow you to check for any unused accounts that are still open in your name. Make sure all these old accounts are closed out before applying for your loan.
Where possible, get caught up on past due debts and make sure all accounts are being paid on. For the best loan options, you want your credit score to be as high as possible.
You should try to save up for a down payment towards the purchase before taking out a loan. Remember, the higher the down payment, the better your loan terms will be. Also, make sure to budget for the monthly repayments on the loan. You can get an estimate for this with an online loan calculator. Try not to over budget as you want to make sure you will be able to make the payments on time.
Frequently asked questions
How much interest will I have to pay for a bad credit car loan?
This amount will depend on your credit history, your employment history and other factors. The rates will be higher than other loan options due to the risk. Expect at minimum somewhere around 6%.
Do I have to put up any collateral towards the loan?
Typically, the purchased vehicle acts as collateral. If repayments are not made, the vehicle can be sold to make up the lost payments. If the full amount required can not be made up with the sale of the vehicle, you may be required to make up that difference.
Can I qualify for a bad credit car loan if I have filed for bankruptcy?
While it is best to re-establish your credit after bankruptcy before applying for a loan, you may be able to qualify for a bad credit car loan if the bankruptcy was discharged at least six months prior to the application.
Can I still qualify if I don’t have a down payment?
It is possible to get 100% financing on the loan, but this will depend on your credit history. It is best to have some money saved towards a down payment.
Loan Experts Ready to Work with You
At Mortgage World Australia we understand that things can happen, and a poor credit history shouldn’t keep you from getting the vehicle you need. Our expert representatives want to help you overcome the obstacles that bad credit can present. If you are looking to get into a new vehicle, and are struggling to find financing, our financial team are ready to discuss options with you.
Whether car, business or personal loan, Mortgage World Australia can advise you. Our financial experts have been serving the community for more than 17 years, and we are ready to serve you as well. Call Mortgage World Australia today and let us help you find the financing you need no matter what your credit troubles are.