Bad credit car loans are available in the market place for people with a bad or poor credit history.
Used cars Australia wide are still financed by people with a bad credit rating through finance companies in the main.
Before you enquire for a car loan thinking you have a poor credit history, you should get a copy of your credit file, to find out exactly how many credit defaults are listed and how many times you have been declined.
My Credit File Report will not only give you a copy of your credit file, but you will receive a tailored credit file report that explains in simple terms what your credit problems are; and suggest ways you can repair your credit rating.
Car loans with a bad credit history are almost always secured personal loans, and depending on the amount and severity of the defaults a lender will often require more equity in the deal; which could mean a larger deposit than for someone who has no defaults. It is not unusual for even a bad credit lender to ask for 30% equity.
Let’s look at an example:
A car is $20,000 and your trade in is worth $5,000; this equates to only 25% equity, so a lender may ask for you to put in an extra $1,000 so that the equity to loan ratio is 30%. This can get a little more complex because the lender will not say the car is worth the retail price of $20,000 that the dealer is asking for. If the lender had to sell the car they would not get a retail price, they would only get a wholesale price. This means that after checking the wholesale price of the vehicle with either ‘Redbook’ or ‘Glass’s Guide’ the wholesale price of the car is found to be only $17,000, so now the lender will require a total of $9,000 in equity, which in this example would be made up of $5,000 with the trade-in, and $4,000 would need to be added by way of cash or extra deposit.
Often too the lender will want the extra deposit to be from savings, and may ask for proof that the amount did come from savings by requesting a copy of your bank statement for the most recent 6 months history. This shows the lender that you can afford the car loan repayments because you have saved; gone without that amount of money, and it has been surplus to your lifestyle.
Savings goes a long way in showing a prospective lender that you can afford to make the repayments on a car loan. if you can show you can go without say $100 a week, and regularly save that $100 dollars in your account for 6 months when it comes time to ask a lender for money, if the repayments are less than that $100 you have proven you could have made the payments on the car loan. You have become less of a risk to the lender, and even with a bad credit history you have shown proof that you are back on track; providing of course you have paid all your commitments on time in that 6 month period.
If you are aware you have a less than perfect credit history, you should not be expecting to get the same interest rate as someone who has a perfect credit rating. Interest rate is determined partly on ‘rate for risk’, so someone who has had a loan before and paid all the payments on time will get a lower interest rate than someone who was late on one or several of the repayments; all other factors being equal.
Sometimes bad credit car loans are referred to as second chance car loans, because people are given a second chance to prove their credit worthiness. if you do get approved for a second chance car loan, you will either go a long way to repairing your credit rating, or making it worse if you default on the repayments again, so make sure you don’t stretch the budget too thin and perhaps look at a cheaper car.
Don’t forget too that when a car is under finance it must have comprehensive car insurance on it at all times, so factor the cost of car insurance into your budget.
It is also worth remembering that each application is assessed on its merits, and each lender; even bad credit loan companies will have their own lending criteria for the car loans that they offer, so do some research first to find the best car loan for you taking your own situation into account before making an enquiry or application. Too many enquiries on your credit file can cause you problems. If you are unsure of your credit rating, receive a copy of your credit file and a comprehensive credit file report with your credit score at My Credit File Report.
