Car finance and credit scores: Your go-to guide

Like with other types of loans, your credit score may play a role in your ability to access a car loan. Lenders examine your credit rating when you apply for a car loan and a low credit score may impact the type of loan you can get, just like a good one can increase your chances.

But don't worry, the Finder app has your problems solved. Our feature lets you find out which personal loans you're likely to get approved for before even applying. Simply download the app, connect your credit score, and automatically see which you might be approved for.

Read on for more helpful information on how to improve your chances of getting a car loan and why your credit score is important.

How does your credit affect your ability to access car loans?

Your credit rating will directly affect your ability to access most loans and car loans are no different. It is normal for banks and lenders to check your credit file during the application process before they approve you for a car loan. If you have a bad credit file or any negative marks on your file, this will classify you as a risky borrower and will significantly limit your options for accessing credit. Lenders like to know they are lending money to someone who has the capacity to repay back their loan, so if there are any marks on your file that indicate you may not be able to do so, this will limit your access to a car loan.

Car loan options with bad credit

If you do have bad credit, there are still some car loan options available that can help you buy a car:

• Payday loans. Payday loans allow you to borrow a small amount of money over a short period of time. You can usually borrow between $100 and $2,000 and borrow the money for 16 days up to 1 year. Bad credit isn’t typically an issue with these types of loans. However, they do have a higher interest rate.
• Bad credit lenders. Some lenders deal specifically in lending money to those with bad credit to help them purchase a car. Bad credit lenders take the risk associated with your bad credit as they specialise in this area. However, rates and fees tend to be higher again.
• Wait until bad marks are removed from your credit rating. Your credit rating doesn’t remain on your record forever. If you can wait to purchase a car, consider waiting until the bad marks are removed from your credit rating so you have more options available to you.
• Credit repair. Credit repair can assist you in finding and eliminating any errors on your credit file and widening your car loan options.

About bad credit car loans

Improving your chances of being approved for a personal loan

If you do have a bad credit rating, there are some ways you can improve the chances of being approved for a car loan.

• Regularly check your credit file. Regularly checking your credit file for any errors or mistakes can eliminate or repair any bad marks from your file that shouldn’t be there and improve your chances for approval.
• Pay bills on time. Late payments of bills show up on your credit file. By ensuring you always pay your bills on time, you won’t have any more late payment marks on your credit rating and will improve your chances of being approved.
• Consolidate debt. Consolidating your debt into one debt can assist you in improving your credit rating. This will make it easier to repay your debt and you may also get a lower interest rate. Controlling your debt will ultimately allow you to improve your chances in being approved for a car loan.
• Control of your credit cards and spending. Controlling your credit cards and spending responsibly when using credit is one of the easiest ways to improve your chances of being approved. Make sure you don’t spend beyond your means, always make your repayments on time and stay in control of your credit.
• Don’t apply for loans too often. Applying for loans too often and getting rejected affects your credit rating. Applying less, or only applying for loans you know you will be approved for, will improve your credit rating and your chances of approval.

Types of car loans

• Secured car loan. A secured car loan requires you to use the vehicle you buy as security for your loan. If you fail to make your car loan repayments, the lender has the right to repossess your car. It can then sell the car to regain some of the funds it lost by lending you money.
• Unsecured car loan. An unsecured loan is when you don’t use your purchased vehicle as security. The lender can’t repossess your car and that makes you a riskier borrower. For this reason, the rates tend to be higher.
• Chattel mortgage. Chattel mortgages are used for those who are self-employed and who purchase a car for business use. They work like personal loans, but they are solely for business. The car you purchase is still used as security and you are still required to make regular monthly repayments. However, you get the choice of making a final repayment, called a balloon payment, that is larger than your regular repayments but helps keep payments down over the course of the loan.
• Dealer finance. Dealer finance is when you obtain finance to purchase your vehicle directly from the dealer rather than from a financial lender. Dealers can offer you competitive rates but there are often certain conditions and you may only be able to obtain finance for certain types of cars such as new cars.
• Unsecured personal loan. An unsecured personal loan is when a lender gives you finance and you don’t need to use an asset of yours as security. You can use your personal loan to purchase a car, though they aren’t designed specifically for the purchase of a car. These types of loans also tend to have higher interest rates because of the associated risk. You will be required to make regular monthly repayments.

If you're looking for a car loan and you have bad credit, you may want to consider the alternative options on this page. To help your application, you may also want to start repairing your credit so you look more favourable to lenders. The benefits of a good credit score include receiving the standard interest rate, rather than a higher one, and access to a higher loan amount, so it's worth looking at the ways you can fix your credit rating.

How do car loans work?

A car loan works just like any other loan except it is designed specially for those purchasing a car. The financial lender will lend you a certain amount of money to purchase your car and you agree to pay back the amount plus interest over a fixed term.

There are a few different options on how you want to structure your car loan. You can set out how much you need to borrow, your loan terms, length of your loan and how frequent your repayments will be. Your car loan will also come with an interest rate which will stipulate how much interest you will need to pay on your car loan.

You can also select either a secured loan, where the vehicle or another asset is used as security against the loan, or an unsecured loan, where no security is required but you will generally pay a higher rate. Different types of car loans may also have certain criteria that you will need to meet. For example, if you're buying a second-hand car, there could be an age limit for the vehicle.

Car loan comparison

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Name	Product	Interest Rate (p.a.)	Comparison Rate (p.a.)	Min Loan Amount	Loan Term	Application Fee	Monthly Service Fee	Monthly Repayment
Loans.com.au - New and Dealer Used Car Loan		From 4.67% (fixed)	5.22%	$5,000	3 to 5 years	$400	$0		You'll receive a fixed rate from 4.67% p.a. based on your risk profile Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment. Settle the loan before 30 November 2021 and enter the draw to win a $1,000 fuel gift voucher. T&Cs apply.	Go to site More Info	Compare	loading Fetching your data...
IMB New Car Loan		4.99% (fixed)	5.34%	$2,000	1 to 7 years	$275.12 ($250 Application fee + $25.12 PPS registration fee)	$0		You'll receive a fixed rate of 4.99% p.a. A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one that's up to two years old.	Go to site More Info	Compare	loading Fetching your data...
NRMA New Car Loan		From 4.99% (fixed)	5.69%	$5,000	1 to 7 years	$499	$0		You'll receive a fixed rate from 4.99% p.a. Purchase a new or used car up to 3 years old and benefit from a fixed rate and no monthly fees. Pre-approval available within 5 business hours.	Go to site More Info	Compare	loading Fetching your data...
Wisr Secured Car Loan		From 4.74% (fixed)	5.01%	$5,000	3 to 7 years	$195 for refinance and dealer sale ($245 for private sale)	$0		You'll receive a personalised interest rate from 4.74% p.a. to 16.01% p.a. based on your risk profile A flexible car loan from $5,000 - $63,000 with personalised rates and rewards for strong credit customers. ⭐Special Offer: Wisr's standard establishment fee $605 will be reduced to $195 for applications submitted through Finder. T&Cs apply.	Go to site More Info	Compare	loading Fetching your data...
Credit Concierge Car Loan		From 3.35% (fixed)	4.41%	$10,000	1 to 7 years	$350	$8.50		You'll receive a fixed rate of 3.35% p.a. with a comparison rate of 4.41% p.a. Get access to over 20 providers to fund a new or used car.	Go to site More Info	Compare	loading Fetching your data...
OurMoneyMarket Car Loan		From 5.35% (fixed)	5.65%	$2,001	1 to 7 years	$250	$0		You'll receive a fixed interest rate from 5.35% p.a. to 14.99% p.a. based on your risk profile. Borrow between $2,001 and $75,000 to finance a new or used car up to 10 years.	Go to site More Info	Compare	loading Fetching your data...
Plenti Car Loan		From 4.89% (fixed)	5.44%	$2,000	3 to 7 years	from $249 to $799	$0		You'll receive a fixed rate from 4.89% p.a. Borrow up to $100,000 with a Plenti Car Loan and benefit from no early repayment or exit fees.	Go to site More Info	Compare	loading Fetching your data...
RACV New Car Loans		From 4.99% (fixed)	5.69%	$5,000	1 to 7 years	$499	$0		You'll receive a fixed rate from 4.99% p.a. A larger loan of $5,000 or more to help you buy a new or used car. 5-hour pre approval available and no ongoing fees.	Go to site More Info	Compare	loading Fetching your data...
Stratton Finance New Car Loan		From 3.85% (fixed)	4.05%	$10,000	3 to 7 years	$700	$8.25		You'll receive a fixed rate from 3.85% p.a. depending on the lender you are approved with Apply for up to $250,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.	Go to site More Info	Compare	loading Fetching your data...
SocietyOne Car Loan		From 5.95% (fixed)	5.95%	$5,000	2 to 5 years	from $0 to $595	$0		You'll receive a fixed rate between 5.95% p.a. and 17.49% p.a. based on your risk profile A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.	Go to site More Info	Compare	loading Fetching your data...
Heritage Bank Car Loan		4.89% (fixed)	5.53%	$5,000	1 to 7 years	$200	$5		You'll receive a fixed rate from 4.89% p.a. Finance a new or used car up to 5 years old. Large maximum borrowing amount up to $100,000 and terms up to 7 years.	Go to site More Info	Compare	loading Fetching your data...
Driva Car Loan		From 2.85% (fixed)	4.39%	$2,000	1 to 7 years	$295 (Varies by lender, starting from $295)	$10		You'll receive a fixed rate from 2.85% p.a. Borrow up to $250,000 with loan terms from 1 to 7 years. Get access to a range of lenders.	Go to site More Info	Compare	loading Fetching your data...
Symple Loans Personal Loan		From 5.75% (variable)	6.47%	$5,000	1 to 7 years	from 0% to 5% of the loan amount	$10		You'll receive a personalised interest rate from 5.75% p.a. to 25.99% p.a. based on your risk profile Borrow up to $50,000 to pay for what you need.	Go to site More Info	Compare	loading Fetching your data...
NAB Personal Loan Unsecured Fixed		From 6.99% (fixed)	7.91%	$5,000	1 to 7 years	$150	$10		You'll receive a fixed rate between 6.99% p.a. and 18.99% p.a. ( 7.91% p.a. to 19.83% p.a. comparison rate) based on your risk profile Borrow from $5,000 to $55,000, with 1 to 7 year loan terms available. This loan comes with no fees for extra repayments and no early exit fees.	Go to site More Info	Compare	loading Fetching your data...
RACQ Bank Car Loan Special		5.49% (fixed)	6.16%	$3,000	Up to 7 years	$395	$0		You'll receive a fixed rate of 5.49% p.a. Borrow up to $60,000 for a new or used car and get a range of membership benefits.	Go to site More Info	Compare	loading Fetching your data...

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