Looking to apply for a car loan? Find out what you need to know and how your score compares.

What is the minimum credit score needed for a car loan in Australia

Car Loan Repayment Calculator: What Will Your Monthly Payments Look Like?

Understanding your credit score tier is only half the picture - what matters most is how that score translates into the monthly repayments you'll actually pay. Your credit score may influence the interest rate a lender offers, alongside factors such as the lender's criteria, loan amount, term, security, income, expenses and credit history, and even a small rate difference can add up to thousands of dollars over the life of a loan.

How much is a $20,000 car loan per month in Australia?

On a $20,000 car loan over five years, your monthly repayment will depend heavily on the interest rate you secure. A borrower with an excellent credit score (above 800) might receive a rate around 6.5% p.a., resulting in monthly repayments of roughly $391 and total interest of approximately $3,460. A borrower with a below-average score (under 625) could face rates of 14% or higher, pushing monthly repayments to around $465 and total interest above $7,900. That difference - nearly $75 per month - adds up to over $4,400 in extra interest across the loan term. These figures do not include establishment fees, monthly account-keeping charges or any other fees a lender may apply, which add to the total cost of borrowing. Always check the comparison rate on any actual offer - it bundles interest and standard fees into a single percentage, giving a clearer picture of the true cost.

How much is a $40,000 car loan for 60 months?

For a $40,000 car loan over 60 months (five years), the same principle applies at a larger scale. At a competitive rate of 6.5% p.a., monthly repayments sit at approximately $783, with total interest paid coming to around $6,930. At a higher rate of 12% p.a. - more typical for borrowers with fair credit - monthly repayments rise to roughly $890, with total interest reaching approximately $13,400. These figures illustrate why improving your credit score before applying can save you a significant sum. These figures do not include establishment fees, monthly account-keeping charges or any other fees a lender may apply, which add to the total cost of borrowing. Always check the comparison rate on any actual offer - it bundles interest and standard fees into a single percentage, giving a clearer picture of the true cost.

How interest rates change your repayments at different credit score levels

The table below shows indicative monthly repayments on a $30,000 car loan over a five-year term, broken down by credit score tier. These rates are illustrative and will vary between lenders, but they reflect the general pattern across the Australian market. These figures do not include establishment fees, monthly account-keeping charges or any other fees a lender may apply, which add to the total cost of borrowing. Always check the comparison rate on any actual offer - it bundles interest and standard fees into a single percentage, giving a clearer picture of the true cost.

As the table makes clear, the gap between the best and worst credit tiers on a $30,000 loan can exceed $13,000 in total interest. Before committing to a car loan, it pays to check your credit score so you know which tier you fall into and can shop for rates accordingly.

It is normal for lenders to look into a prospective loaners credit history before accepting an application for a car loan. If an individual has a lower than average or bad credit score it classifies them as a risk for borrowing which will result in limited opportunities for lending. However, even if your credit score is low, you can still meet some lenders' standards for a car loan in Australia

When it comes to applying for a loan it can be difficult to pinpoint the minimum credit score requirement from bigger lenders. This is because lenders have varying standards and criteria when assessing a car loan application. In this way, there is no minimum requirement needed for a car loan in Australia but they do play a part in influencing the application process, and in turn, the loan options available.

Lenders tend to be cautious when accepting applications to alleviate risk. The average credit score for Australian adults varies between credit reporting bodies, though ClearScore Australia shows your Experian score, which ranges from 0 to 1,200. A higher credit score correlates to an individual's healthy finances and repayment history. Scores above 700 will usually benefit from more competitive rates and may qualify for additional benefits. Respectively, those who have a credit score under 625 may be penalised with higher interest rates and more expensive deals.

Once you know your credit score, you can assess if it is healthy or poor by using a credit reporting body benchmark as a reference.

• Credit score below 625: It can be extremely difficult for individuals in this bracket to qualify for a car loan with a big bank or lending institution. People in this bracket are considered high risk which usually results in higher interest rates and alternative lending options like captive financing or online lending.

• Credit score from 625 to 699: Individuals with this credit score are generally considered risky to accept for a car loan. This means that lenders outweigh the risk by offering higher interest rates and larger deposits. Additional requirements may be needed for a lender to accept an application at this level

• Credit score from 700 to 799: Car loan applications in this range are assessed against each lender's own criteria, and the loan amount is usually quite low in comparison to a house or larger investment.

• Credit score from 800 to 899: Credit scores in this range are usually considered to be quite healthy and lenders would feel quite comfortable lending to individuals with this score.

• Credit score from 900 to 1,200 (Experian scale): On the Experian scale (0-1,200) - the score ClearScore Australia shows - this is the highest tier. On the Equifax scale, the equivalent 'Excellent' band runs from 853 to 1,200. Individuals in these top brackets are considered very creditworthy and reliable with their loan repayments, and may benefit from lower interest rates and smaller deposit requirements.

With these scores in mind, car loan eligibility does not necessarily correlate to a successful or unsuccessful application. Rather, having a lower credit score just means that options tend to be more limited and a higher credit score allows for more options and flexibility. To understand what category you may fall into, you can check your credit score at any time.

What is the importance of credit score for car loans?

A good credit score is very important when you are looking for a car loan. With a high credit score, you have a higher chance of getting your car loan approved. On the other hand, a low credit score can make it incredibly challenging for you to get approved for car loans.

Your credit score is also important because it can determine other factors of your car loan, including:

• The rate of interest: A higher credit score means the lenders see you as a low risk candidate as you are more likely to repay the loan back on time. As a result, you will be offered a low interest rate. But with a low credit score, you may get stuck with a high interest rate

• The loan amount: With a high credit score, you prove to the lenders that you have a good repayment history and creditworthiness and that's why, lenders may consider you for a larger car loan amount, though each application is assessed individually. But with a low score, you may not be able to get a loan for the full desired loan amount.

A good credit score also gives you access to special offers such as lower fees and reduced deposit requirements, depending on the lender.

Can I get a car loan with bad credit?

In short, yes. Having a bad credit record and low credit score does not automatically result in your inability to apply and successfully receive a loan from providers. There are a range of factors that lenders will use to determine if you qualify for a car loan with credit score being just one of these factors.

However, having a lower credit score does make approval much more difficult and access to lower interest rates, lower deposits and other benefits may not be available to you. It is dependent on the lender and how their loans operate.

How to get a car loan with bad credit?

In Australia, there are two main types of car loans, they are secured and unsecured loans.

Secured car loans require a borrower to offer collateral that the lending provider can sell or confiscate if repayments are not met. Unsecured loans do not require the same collateral from the borrower with almost anyone being able to apply for them.

In both situations, a potential applicant still needs to provide their credit history in the loan application process. However, there are some strategies that you can consider to improve your chances of acceptance in either secure or unsecure methods.

• Improving your credit score: It can be difficult to change an already low credit score but by practicing healthy financial habits like paying off any debts or saving regularly you will demonstrate sensible financial habits for lenders. Boosting your credit score will also give you more opportunities to choose favourable loans and repayment options.

• Ask for a co-borrower: By asking someone close to you like a relative, friend or partner to apply for a loan with you it will make both parties equally responsible. However, ensure that your chosen individual also has a good credit score as missed repayments could result in credit consequences for both of you.

• Go to a lender that will give you the best deal: Assessing a lender's eligibility and assessment criteria before making an application will give you an idea of what lenders would be willing to let you borrow from them. Consider contacting lenders to make initial enquiries before lodging a full application.

• Choose cheaper options: If you are having trouble getting a loan for a car that is more expensive than others it may be time to reconsider your choice of car. Finding a less expensive vehicle will reduce the loan amount and therefore the risk to the lender which is a more attractive option for a provider.

• Provide supporting documentation: Other factors can impact an application beyond just a credit score. You can provide bank statements, pay slips, previous car repayments and other documents that can be supplied as evidence for your favourable financial circumstances. Be careful not to miss any relevant information as lenders could see this as misleading.

Financing options for cars with bad credit

Beyond having secured and unsecured options for car loans, there are other types of car loans that are available for individuals with bad credit.

• Secured car loans: Lenders offering this type of loan will take collateral, such as the car being purchased with the loan, and repossess the collateral if repayments are not made to reimburse the money that was owed.

• Unsecured car loans: These loans do not take collateral but usually require consistent repayments. However, because of the risk of lending to an individual under these circumstances the interest rates are quite high.

• Payday loans: If you are applying for a small loan over a short period of time, this may be the option for you. The length of repayment will range from 16 days to a year, and under Australian law these Small Amount Credit Contracts are subject to capped fees - a maximum 20% establishment fee and a 4% monthly fee on the amount borrowed - rather than traditional interest rates.

• Bad credit lenders: Specialist lenders will sometimes work solely with individuals with a lower credit score to help them purchase a car. These lenders will take the risk associated with bad credit scores but also charge a higher interest rate with numerous fees.

• Second-chance car loans: If you have already tried to apply for a loan and have been rejected this may be the option for you. This is a type of loan that gives individuals with a lower credit score an opportunity to take out a loan via credit unions or reputable lenders. These loans typically have a higher interest rate and fees.

Where can I get a car loan with bad credit?

Comparing Car Loan Providers in Australia

Choosing the right provider is just as important as improving your credit score. The table below compares the main car loan provider types across key factors so you can quickly identify which option suits your situation.

No single provider type is universally the best - the right choice depends on your credit score, how quickly you need approval, and whether you value rate competitiveness or approval flexibility. If you are unsure where you stand, start by checking your score with ClearScore and then compare options that match your tier. You can also explore ClearScore's personal loans (a credit broker, not a lender) to see offers you are more likely to be approved for, based on your credit profile.

Bad credit loan options like personalised car loans can greatly improve an individual's chances of having a successful loan application. It is important to research potential providers that can tailor personal loans to an individual's credit score like ClearScore's personal loans to ensure better deals for specific credit score ratings.

Before applying for a car loan it is also important to become familiar with borrowing options and auto financing procedures. Knowing how each lender operates could save you more money and hassle in the long run and could result in an improved credit score or offer an improved rate.

• Captive financing: This financing is through a manufacturer and kept in-house, meaning that the borrower is buying and directly finances the loan through the dealership. Captive lenders work well with individuals with lower credit scores and can be forgiving as they have an incentive as individuals will buy their car instead of other brands.

• Dealer financing: This is arranged by a car dealer as they work with different lenders to give you several loan options to find the one with the best terms. These options are good for individuals with a subpar credit score as your credit history is shared amongst several lenders.

• Bank or credit union: With these kinds of loans, you would have to apply with a banker and receive a pre approval which you take back to the dealership. These types of loans will be paid back directly to your bank or credit union on a monthly basis. This is a viable option for those who already have an existing relationship with a bank or credit union as they can overlook lower credit scores in favour of the existing relationship.

• Online lenders: Online lending is becoming extremely popular as Buy Now, Pay Later options also rise in lending spaces. The process of applying for these loans is all digital and can usually be found by looking online for auto loans, just be wary of unfamiliar or new companies. Do your research to find a reputable and fair deal.

• Buy here, pay here: This option has dealers that specialise in working with people with no or lower credit scores and finance the purchase of the car themselves. However, there are many downsides to buy here, pay here options including high interest rates, expensive deposit requirements and limited selection of cars.

Build your credit score before applying for car loans

Car Loan Budgeting Rules: The 20/3/8 Rule and 50% Rule Explained

Before you sign on the dotted line, it helps to apply a few widely used budgeting rules to make sure your car loan repayments are genuinely affordable - especially if your credit score already limits your borrowing options.

What is the 20/3/8 rule for car finance?

The 20/3/8 rule is a straightforward budgeting guideline designed to keep car costs manageable. It works like this: put down at least 20% of the car's purchase price as a deposit, finance the car for no longer than 3 years, and keep total monthly vehicle expenses (loan repayment plus insurance and registration) under 8% of your gross monthly income. For example, if you earn $6,000 per month before tax, your combined car costs should stay below $480. Following this rule reduces the risk of negative equity - where you owe more than the car is worth - and keeps repayments at a level most households can sustain comfortably.

What is the 50% rule on car finance?

The 50% rule takes a simpler approach: never finance more than 50% of your annual gross income on a vehicle. If your gross annual salary is $80,000, that means limiting your total car loan to $40,000 or less. The logic is that cars depreciate quickly, and borrowing beyond this threshold often leads to repayment stress - particularly if interest rates are higher due to a lower credit score. This rule is especially useful as a quick sanity check before you start comparing lenders.

How do these rules apply when you have a lower credit score?

If your credit score is below 700, both rules become even more important. Higher interest rates mean your monthly repayments will be larger for the same loan amount, so the 8% ceiling in the 20/3/8 rule effectively reduces the maximum car price you can afford. Similarly, the 50% rule helps you avoid stretching into loan amounts that become unmanageable once higher rates are factored in. Applying these guidelines before you apply for finance can save you from taking on a loan that damages your credit score further through missed or late payments.

If you just aren't getting car loan interest rates that work for you, it may be best to delay buying your new car and work on building your credit score first. Here are a few things you can do for that:

Lower your credit utilisation ratio: The idea is to keep your credit balance low as compared to the credit limit available to you. This will help show the lenders that you can stay on top of things well and you aren't overextending yourself.

Avoid applying for other credit products: When you are applying for a car loan, refrain from applying for other types of credit in the same span of time. Ideally, you should avoid applying for new credit products for the next 4-6 months.

Build payment history: For all your existing credit products, you should make sure to pay your bills on time and in full. Don't miss any payments or it can affect your credit score and report even more. It's also a good idea to setup automatic payments so you don't forget.

Factors beyond credit score that can help you get a car loan

Pre-Application Checklist: How to Know If You'll Get Approved

Before you submit a car loan application, working through a quick pre-application checklist can save you from unnecessary hard enquiries on your credit report and help you feel confident about your chances of approval.

Step 1: Check your credit score and understand your tier

Your first step is to check your credit score for free. Once you know your number, refer to the credit score brackets outlined earlier in this article to understand which tier you fall into and what kind of rates and approval odds you can realistically expect.

Step 2: Review your credit report for errors

Mistakes on credit reports are more common than many people realise. Look for incorrect account balances, duplicated debts, or defaults that have already been resolved. If you spot an error, lodge a dispute with the relevant credit reporting body before applying - correcting even one mistake could shift you into a higher score tier.

Step 3: Calculate your debt-to-income ratio

Lenders assess your debt-to-income (DTI) ratio to determine whether you can comfortably handle additional repayments. Add up all your existing monthly debt obligations (credit cards, personal loans, HECS-HELP, rent) and divide the total by your gross monthly income. Most lenders prefer a DTI below 30-40%. If yours is higher, consider paying down existing debts before applying.

Step 4: Gather supporting documents

Having your paperwork ready speeds up the process and demonstrates financial responsibility. At a minimum, prepare your last two to three payslips, recent bank statements (typically three months' worth), proof of identity (driver's licence or passport), and details of any existing debts or assets. Self-employed applicants should also have their most recent tax return or a letter from their accountant.

Step 5: Pre-qualify without a hard enquiry where possible

Some lenders and comparison platforms offer pre-qualification or soft-check tools that estimate your approval odds without leaving a mark on your credit report. Taking advantage of these tools lets you gauge your likelihood of approval across multiple providers before committing to a formal application.

What to do if you are unlikely to be approved right now

If your score is low, your DTI is high, or your credit report contains unresolved issues, it may be worth delaying your application by three to six months. Use that time to pay down existing debts, correct any report errors, and build a stronger payment history. Even a modest improvement in your car loan credit score can open the door to better rates and a higher chance of approval when you do apply.

If you have a low credit score and you are concerned about getting approved for your car loan application, you need to prepare yourself and focus on the other factors that can help you get the approval.

Here are some of the factors beyond credit score that can effectively help you get approved for your car loan.

Bigger deposit

To offset your low credit score, you can put down a considerably bigger deposit which will lower your monthly payments and help you get a lower interest rate as well. Paying a big deposit also makes you appear as a less risky candidate even with a lowered credit score.

Show your financial stability

Even with a low credit score, you can show your potential loan lenders that you are less of a risk by sharing documents that can showcase your financial stability. You can bring documentation of your employment along with your proof of income to show that you are a reliable loan applicant.

Look for your own financing

While most car dealerships offer financing options of their own, you can also check with your bank and other loan providers to find better car loan rates and offers. Take your time while comparing the quotes from the top lenders and review their eligibility criteria.

Once you have finalised on the lender of your choice, you can apply for the loan and hope to get approved. Remember that every time you apply for a loan, it creates a hard enquiry in your credit report. So, you shouldn't apply to too many lenders in a short span of time as that could lead to your credit score getting affected.