Buying a car with bad credit? What you need to know about no credit check car loans.
If you’ve got a bad credit history or if you don’t have a credit history, it can be difficult to find the financing you need to buy a car from some lenders. And if the banks and other traditional lenders have refused your loan applications, it can be tempting to turn to a lender that offers no credit check car loans.
Find out what you should know about this type of car loan before you apply as well as how to decide if it's the right loan type for you.
How do no credit check car loans work?
A lender that approves loans without conducting a credit check will operate under the assumption that you have bad credit. As these lenders can't check your credit history, they base their decision to lend you money on an assessment of your income, liabilities, employment status and current financial situation.
The absence of a credit file check means that no credit check car loans can be a more risky proposition for borrowers and for lenders. Borrowers that apply for no credit check loans are higher risk, so no credit check car loan lenders usually impose higher interest rates and require you to pay a larger deposit in order to qualify for a loan.
Smaller amounts you could borrow for your car loan
What you need to know about no credit check car loans
Under Australia’s National Consumer Credit Protection Act, lenders must only loan money responsibly, so a credit check before providing financing is usually an important requirement for all responsible lenders.
As a result, no credit check car loans are generally not widely available in Australia and many borrowers simply apply for a bad credit loan instead. However, they are technically legal and you can still find providers that will not check your credit as part of the application. As long as the lender is certain that you won’t face financial hardship or struggle to make repayments, they may still be able to offer no credit check financing.
The following are some common features of no credit check car loans:
- High interest rates. No credit check car loans typically have much higher interest rates than regular secured and unsecured loans that involve a credit check during the application process. In some cases, interest rates can be as high as 30%.
- Large deposit. You’ll usually be required to pay a hefty deposit, much more than you would for a normal car loan, in order to qualify for no credit check financing.
- Car used as collateral. Most lenders will require you to list your car as collateral for the loan. As a result, if you fall behind on your repayments, the vehicle could be repossessed.
- Direct debit payments. Most lenders will also require you to set up a direct debit arrangement to pay off the loan. If there aren’t enough funds in your account, you could start falling behind on repayments – not to mention having to deal with the additional expense of any direct debit dishonour fees charged by your bank.
- Long loan terms. Many no credit check car loans have terms in excess of five years. Combined with the notoriously high interest rates that apply to such loans, this could mean that the outstanding balance owing on your loan exceeds the resale value of your car.
- Quick turnaround time. Many lenders offer fast access to financing, with some even offering same-day turnaround.
Alternatives to no credit check car loans
If you’ve got a bad credit history, don’t assume that the only option available to you for car financing is a no credit check car loan. In fact, it’s entirely possible to qualify for a bad credit car loan to get the funds you need to buy your next set of wheels.
Many lenders specialise in providing financing to borrowers with bad credit, but they’ll conduct a credit check first before agreeing to offer you a loan. Not only can bad credit car loans be a much safer option than no credit check loans, they can also help you improve your credit rating for when you need to access financing in the future.
A final option worth considering is to wait until the black marks on your credit file are removed. Check out our guide to credit files to find out how long negative listings stay in your file. You can also take several simple steps to improve your credit rating and enhance your future borrowing prospects.
How to improve my credit file
A bad credit history won’t necessarily disqualify you from car loan financing, so it’s worth considering the bad credit loan options available to you. However, if you’re afraid of what a lender will see when they access your credit file, there are a few easy things you can do to get your file into the best possible shape:
- Get your free credit score. This is free to do and will allow you to see what a lender sees when assessing your credit history. Get your free credit score from finder.com.au here.
- Take charge of debt. By making regular repayments to pay off money you have borrowed, you can not only improve your credit rating but also demonstrate to a lender your capacity to make repayments. You may also want to consider your debt consolidation options.
- Remove incorrect listings. Dispute any incorrect listings on your file and have them removed if possible.
- Negotiate with lenders. Consider negotiating with your credit provider to set up a payment arrangement to help you settle debts.
- Start saving. Work out a budget and start putting money aside from each pay packet. Being able to demonstrate a genuine ability to save money shows financial discipline and can improve your borrowing power.
- Get expert help. You can contact the free financial counselling service on 1800 007 007 to get independent financial advice about how to better manage your money.
I still have a few questions about no credit check car loans
Is a no credit check car loan right for me?
Many borrowers opt for no credit check car loans because they are concerned about their credit history. However, bad credit lenders will often still be an option to consider even if you have a few bad marks on your credit file.
How can I find a reputable lender?
The key to this is research. Make sure the lender has an Australian Credit Licence (ACL) and check independent online reviews from other people who have previously used the lender. You should also carefully read the loan terms and conditions to check that everything is above board.
Are there any fees I need to be aware of?
Yes. Check the loan contract for details of any establishment fees and ongoing fees that apply as well as how much you will be charged for missing a repayment.
How do I compare bad credit car loans?
Consider the interest rate, fees, loan term, repayment schedule, regular repayment amount and additional repayment flexibility when comparing loans.