Bad credit car loans Australia

Getting a car loan when you have bad credit is a challenge. But it's far from impossible. Bad credit borrowers have a few options:

1. Improve your credit score and apply for a regular car loan. Improving your credit score means sorting out late payments and unpaid debts. It can take months or even longer.
2. Look for bad credit car loans from specialist lenders. These loans have higher rates because you're a higher risk borrower. If you are able to use the car as security you can improve your chances of approval.

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 and therefore less competitive.
• 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, and 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.

Calculate your bad credit car loan repayments

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.

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

Lead Editor

Elizabeth Barry was the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review. See full bio

Elizabeth's expertise

Elizabeth has written 211 Finder guides across topics including:

• Banking
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Co-written by

Richard Whitten

Editor

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio

Richard's expertise

Richard has written 560 Finder guides across topics including:

• Home loans
• Property
• Personal finance
• Money-saving tips