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Car loans for bad credit

What happens when you want a car loan but you have bad credit? Keep reading to find out

16 August 2022Lloyd Smith 6 min read
How to get car loans for bad credit. What is a bad credit car loan

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Credit rating plays an important role when you approach a lender for a car loan. After all, it is your credit score and credit record that gives an indication of how you are as a borrower.

However, having a bad credit score doesn’t have to be a hurdle if you want to borrow money to purchase a car. You can always opt for specialised loans called bad credit car loans.

Here’s what you need to know about how to get approved for a car loan with bad credit:

Bad credit car loans are car financing loans specifically meant for borrowers with bad credit ratings.

Since such borrowers are considered less creditworthy, getting approved for traditional car loans is usually difficult. That’s why there are lenders in the market who specialise in dealing with borrowers with poor credit scores and lend them money.

Compared to regular loans, bad credit car loans charge a significantly higher interest rate. Some lenders may also require additional security to minimise the risk of lending to a high-risk borrower.

A bad credit score doesn’t automatically prevent you from getting a car loan. There are car loans with bad credit in Australia that are specifically targeted toward borrowers with less than perfect credit histories. Lenders providing these loans consider a range of factors while deciding on your loan application and view your credit score to be only one of them.

Getting a car loan with bad credit comes at a price since a low credit score makes you a riskier borrower. For instance, the interest rate tends to be higher than what’s charged when the borrower has a good credit record.

Lenders only extend low credit loans to a suitable borrower, and they consider a range of factors to decide suitability. These include:

Credit history

Your credit score and credit report give a reasonably good idea to the lender about your repayment record. If your credit history is poor and you have defaulted several times in the past, the lender may decline your loan application or approve it subject to fulfilment of other conditions.


Your income is an important factor in deciding on bad credit car finance applications. Lenders want to know how much disposable income is available for loan repayment. Your salary, investment earnings, and benefits from the government count towards calculating your income.

However, someone who is solely surviving on benefits and doesn’t have any other source of income such as salary or investment earnings may not find it easy to get approved for bad credit car loans.


Lenders will also factor in your day-to-day expenses. This also includes your other outstanding debts and credit card bills. It helps the lenders understand how your current payment obligations stack up against your income.

Loan amount

The loan you are borrowing is also a crucial factor. For instance, if you want to borrow a smaller amount to buy a pre-owned car, your chances of getting approved for a car loan with bad credit are higher compared to borrowing a large amount of money for a luxury vehicle.

Comparing bad credit car loans in Australia makes it easier to find the best one suited to your needs. Here’s what you need to keep in mind while analysing different offers:

Interest rate

The interest rate on any loan is an important factor as it decides the total cost of borrowing. When comparing poor credit rating car loans, check what rate you are being offered and compare it against other offers. Ideally, you should go for the lowest interest rate so that the repayment amounts are affordable. Also, keep in mind that interest rates for unsecured loans tend to be higher than for secured loans.

The loan term can be anywhere between 12 months to 7 years. A shorter term means saving on interest payments and paying off your debt quickly. However, it can also mean larger monthly instalments. In contrast, opting for a longer term can reduce the monthly instalment, but it also means paying more interest.


It is not unusual for lenders to charge fees on car loans for bad credit, over and above the interest rate. These include administration and establishment fees. Some lenders may also charge prepayment penalties for paying off your loan ahead of scheduled maturity. Fees can add up and increase the overall cost of borrowing.

So make sure to check how much you will be charged as fees.

Repayment schedule

You may want to make extra repayments every month and prepay your car loan for bad credit to become debt free sooner. Some lenders may have strict restrictions against changing the agreed repayment amount and schedule.

Applying for car loans with bad credit can be more difficult than applying for a car loan when you have a high credit score.

Here’s what you can do to improve your chances of getting approved:

Know the lender’s eligibility criteria

Lenders providing loans with bad credit have their unique eligibility criteria. Knowing whether you fulfil the requirements can help you save time and ensure that you don’t approach lenders who are unlikely to give you a loan. For instance, for some lenders, a bad credit score could mean any score below 660, whereas, for others, it could mean scores below 600. Know your current credit score, so you have a clear idea of where you stand and which lenders are likely to approve your application.

Most lenders expect you to fulfil these basic requirements:

  • have a steady source of income
  • be 18 years or above
  • be an Australian citizen or a permanent or temporary resident as per Australian laws

Gather all your documents before you apply

Every lender providing car finance for bad credit requires various documents supporting the application. These include salary slips, bank statements, tax returns, proof of receipt of benefits, proof of identity, and proof of residence.

Keeping all your documents organised before you apply for a car loan bad credit helps avoid any last-minute rush.

Bank with your preferred lender

Based on the eligibility criteria of various lenders and an assessment of your financial situation, you may feel that you are unlikely to be approved for auto loans. In that case, it might make more sense to approach your current bank with whom you have a long-standing relationship.

Depending on your payment track record, they may be more likely to extend you a loan even when you have bad credit. In fact, some may even extend car loans for bad credit with instant approval.

Before you approach any lender for bad credit car loans in Australia, make sure to check that they are licensed to lend. You don’t want to apply for loans for bad credit online only to discover that your documents have been used for identity theft.

Spend considerable time comparing the various options available. In particular, pay attention to the interest rate, repayment instalment, and additional fees, if any. These factors determine which is the best car loan for bad credit for you, as you should be able to afford the loan you want to borrow. Use a car loan calculator to compare your options by varying the interest rate, loan amount, and term to determine the suitable option for you. Consider whether you want to opt for a variable loan where the interest rate changes over the term of the loan or a fixed one where it remains the same throughout.

Keep in mind that when it comes to bad credit car loans, there is no guaranteed approval in Australia. A legitimate lender evaluates your application and considers several factors before sanctioning the funds. Anyone who promises guaranteed sanction is best avoided.

If you are unable to get car finance with bad credit, here are some alternatives you can consider:

Dealer finance

Car dealers may be willing to provide car loans with bad credit. These work similar to a bank loan. The only exception is that sometimes the dealer may want the borrower to make a balloon payment towards the end of the loan term. Once the payment is made, the ownership of the vests with the borrower.

Similar to lenders, dealers also conduct a credit check. However, they are unlikely to reject a borrower simply on account of bad credit. They may charge significantly higher interest on car loans for people with bad credit to square off the increased risk.

Guarantor car loans

Getting a guarantor is another if you are unable to get approved for poor credit car loans. A family member can be a cosigner for a car loan with bad credit and act as a guarantor. The guarantor has the responsibility to ensure loan repayment in case the borrower defaults.

This is useful for a lender as it helps them to minimise the risk by shifting the burden of payment to the guarantor in case of default. However, non-payment on the part of the guarantor can bring down your score even further. So be careful who you approach.

What is bad credit for car loans varies depending on the lender you approach. However, finding a lender to provide car bad credit financing is still possible.

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Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.