Bad credit car loans Australia

What to look for in a bad credit car loan

• The interest rate. The interest rate is a percentage figure. The higher the rate, the more expensive your repayments will be. You can compare the rate to other loans to find out how competitive it is. Remember that with bad credit car loans, interest rates are usually higher.
• The fees. Some lenders charge a monthly account fee or administration fee on their bad credit car loans, which generally range from $5 to $15 per month. Many will also charge an establishment fee to create your loan. This fee can be as little as $100 or as high as $600 or greater.
• The loan term. Shorter loan terms mean higher repayments because you have less time to pay off the loan. A longer loan term will give you lower repayments but also means you pay more in interest because interest is charged each year.
• Secured or unsecured. Bad credit car loans can be either secured or unsecured. Secured loans can be easier to be approved for because they are less of a risk for the lender; if you default on the loan, the lender is able to take your security (the vehicle you purchase) from you to cover its losses. Because of this, secured loans may come with lower interest rates and fees than unsecured loans.

Calculate your bad credit car loan repayments

Where can I get a bad credit car loan from?

The bigger, more traditional banks are less likely to be an option for you if you have bad credit. Here are some alternatives:

Specialist lenders: Non-bank specialist lenders often have a higher risk appetite.
Peer-to-peer lenders: Peer-to-peer lending is where loans are financed by a marketplace of investors. These loans typically have more flexible lending criteria.

What to avoid with your bad credit car loan

Unfortunately, a lot of dodgy and unlicensed lenders operate in the bad credit lending space. Make sure you know exactly what you're getting into before you sign up for a bad credit car loan. Here's what to avoid:

• Unlicensed lenders
• Unnecessary or exorbitant fees (compare with similar lenders to see what is reasonable)
• Unnecessary contract stipulations

Check review sites where other consumers have rated the performance of car loan lenders, peruse discussion boards on car sales websites and car enthusiast sites to see what other people have to say about certain lenders.

You can also look up the lender's licence numbers to check they are legit and check their customer service numbers are working before you submit your application.

Our expert says: Improve your credit score, if you can

"If you can wait a few months before taking out finance to buy a car, the best thing you can do is work to improve your credit score. This will open up more options for lenders and better interest rates.

You can work on improving your score by consolidating any other debts you have (if you can't close them completely), making sure your repayments are made on time and checking your report for activity you don't recognise."

Rebecca Pike

Editor, Money

How to apply for a bad credit car loan

Applying for a bad credit car loan isn't necessarily different from applying for a regular car loan. You can usually still apply online.

The steps for applying for a bad credit car loan are:

1. Check your credit report. Make sure your credit score is as good as it could be by checking if there are any easy wins to improve your score or if there are discrepancies you could argue against.
2. Compare car loans. Take a look at car loans on the market and research their eligibility as well as interest rates. You probably want to take a look at non-bank lenders and peer-to-peer lenders for bad credit score options.
3. Get a quote. If the lender offers it, get a quote first so you can realistically calculate your costs.
4. Gather your documents. You'll need to provide identity verification like a passport, but you may also need to submit other financial information.
5. Fill out the application. Complete the application form, usually online or over the phone.

In some cases you may need to speak to a credit assessor to go through your details, particularly if you have a bad credit score.

Alternatives to bad credit car loans

A credit card

If a bad credit car loan isn't the right choice for you, there are other options to consider. You could, for example, use a credit card to buy a car. The main way to pay for a car purchase is to use a low interest rate or 0% offer, which could let you pay off the balance gradually without the hefty charges associated with a regular credit card or personal loan.

Credit cards have high interest rates once they do start charging interest, so be aware of that before you consider this option.

Read our guide to paying for a car with a credit card here.

Improve your credit score

Another way to avoid going down the bad credit car loan route is to wait until the bad marks on your credit file are gone. You can also work to improve your credit rating by making regular repayments on your current debt, removing incorrect listings on your file, paying your bills on time and more.

Improving your credit score can take months or years depending on your credit history.

Frequently asked questions about bad credit car loans

• What is the lowest credit score to buy a car?

  There is no one "lowest credit score" to buy a car in Australia. Some lenders may accept applicants in the Average and Fair credit score categories which have credit scores in the 400s and 500s, but this differs depending on a number of factors such as the car you're buying, your income and your employment situation.

• How do I choose a lender that is reputable?

  Do your research. Get online and see what other people are saying about their experiences with different lenders on forums, discussion boards and review sites. Talk to people you know who have applied for bad credit car loans: what lender did they choose and was the process a success? Finally, make sure to read all the terms and conditions and shop around for the best deal.

• What fees are involved that might be different to bigger banks?

  Monthly account fees and establishment fees tend to be higher with bad credit car loans. Some loans will also include a fee for early repayment, so make sure you know the ins and outs of your loan.

• What if things go wrong and I can't pay?

  If you can't resolve a problem with your credit provider, take your complaint to your provider's independent dispute resolution scheme. This will be either the Financial Ombudsman Service or the Credit and Investments Ombudsman Ltd. Both schemes can be reached by calling 1300 780 808. If you think that a credit provider has acted unlawfully or in a misleading way, you can complain to ASIC online or call ASIC's Infoline on 1300 300 630.

Written by

Elizabeth Barry

Journalist

Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio

Elizabeth's expertise

Elizabeth has written 204 Finder guides across topics including:

• Banking
• Personal finance
• Investing

Co-written by

Richard Whitten

Senior Money Editor

Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

Richard's expertise

Richard has written 698 Finder guides across topics including:

• Home loans
• Credit cards
• Personal finance
• Money-saving tips