Bad Credit Car Loans
Sometimes bad things happen to good people. Whilst trying to do your best to deal with a unique set of circumstances, sometimes your credit rating suffers as a consequence. With flexibility and understanding, AFS is one of the few credit providers that you can trust to obtain a sensibly priced car loan that will help you re-establish your credit rating.
If your credit history isn't perfect due to special circumstances, or you're a discharged bankrupt, but have a reliable job and a good deposit, then a Bad Credit Car Loan from AFS is the credible way to get yourself back on the road. By re-establishing your credit rating with AFS (a member of the Australian Financial Industry Association) we will be able to provide a recognised credit reference to your bank or financial institution of your choice when you next need a loan. This may be particularly important if you are considering buying a home at some stage in the future.
AFS is a well established, Australian owned and operated company with over 30 years' experience in the Australian financial services markets. AFS' mission is to understand your requirements & objectives and provide an affordable finance solution that suits your needs and financial situation. AFS - Flexibility & Understanding when it counts.
Bad Credit Car Loan Essentials
Interest Rates from:
10.77% p.a.* Fixed Rate
12.23% p.a.^ Comparison Rate
- Borrow between $5,000 to $35,000 for a new or used car
- A great interest rate: Standard rate plus 2.5%pa for up to 2x defaults
- Fixed interest rate for the life of the loan
- Pay as frequently as you like: weekly, fortnightly or monthly
- Choose a term from one to five years.
- Make extra payments when you like
- Ability to purchase your car from a dealer, auction house or private vendor
- No restriction on the age of the car you want to purchase
* Interest rate (Annual Percentage Rate/APR) is only applicable for new goods that have not been pre-owned, where the amount borrowed is between $5,000 - $35,000 and where the applicant owns or is buying a property and has a maximum of two (2) paid or unpaid defaults to a value of $5,000. Finance subject to approval, including the application of applicable lending criteria. Terms and Conditions apply. Fees and Charges are payable. Interest rates vary depending on the applicant's credit score and associated credit risks. Credit provider is Automotive Financial Services Pty Limited – Australian credit licence 383762. ^Comparison rate for AFS Loan Contract and Mortgage is calculated on a loan amount of $30,000 secured over a term of 5 years based on monthly repayments. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
AFS Credit Criteria
- Defaults: Maximum of two (2) paid or unpaid defaults to a value of $5,000. AFS will add 2.5% to the carded rate where your credit report has a default, judgment, writ or court action listed.
- Pay Day Enquiries: Enquiries only dated more than 6 months ago will be considered. Active Pay Day loans are unacceptable. AFS will add 2.0% to carded rate where pay day enquiries are listed on your credit report.
- Maximum Advance: $35,000 net amount financed including any fees and charges.
* Other credit criteria apply
What is a Bad Credit Car Loan?
A bad credit car loan is for people who have a poor credit history and typically can’t get finance for a car from a traditional lender, like a bank.
Whilst some banks and lenders may refuse to provide credit to you for a car based on your poor credit history, there are specialty lenders that are prepared to give people a second chance. These lenders take the risk to approve loans for people with a poor credit history because they have built up an expertise in processing bad credit loans and have greater flexibility in their credit policies in contrast to the banks and mainstream lenders.
However, you should exercise caution when shopping around for a bad credit car loan as there is a diverse range of lenders with many charging exorbitant interest rates and high fees.
AFS understands that bad things happen to good people and can assist you if you’ve struggled to manage your finances in the past and have credit defaults listed on your credit report. Our aim is to lend responsibly and rehabilitate your credit rating.
General Product Characteristics
Key characteristics of a Bad Credit Car Loan are:
- Higher Interest Rates - up to 48% annual percentage rate
- Higher Credit Fees & Charges - some lenders charge questionable fees like a “risk adjustment fee” that can cost you $100’s extra plus interest
- Smaller Credit Limits - most lenders restrict the amount they will lend to under $20,000 restricting the type of car you purchase
- Longer Loan Terms - Many lenders offer 84 month terms which increase the total amount of interest you end up paying
- Higher deposit required - this is designed to limit the risk to the lender whether its based on your credit history, your ability to service the loan or the loan-to-value ratio of your vehicle
What to consider before taking out a bad credit car loan?
Do your research before taking out a bad credit car loan.
Most finance companies and brokers provide online loan calculators on their website, so your first stop should be to research different car loan repayment scenarios in order to set yourself a realistic budget you can afford.
A car loan calculator will enable you to test variables such as loan size, loan term and interest rate and provide you with the monthly loan repayment.
If your monthly repayments are higher than your budget, you might be able to reduce them by contributing a larger deposit or opting for a longer loan term. However, if the loan repayments are lower than your budget, you might want to consider increasing the loan amount in order to purchase a better-quality car or you could shorten the term to reduce the total amount of interest payable.
During your research, you’ll probably come across both fixed and variable interest rate loan products. The interest rate on a variable loan will go up or down based on the funding costs of the provider, which could be detrimental or helpful to your financial position. A fixed interest rate loan, though, would never change, which would make it easier for you to budget and meet your financial commitments.
Don’t forget that interest rates aren’t the only cost – there are also credit fees and charges to consider. These may include loan establishment fees, loan account-keeping fees, car registration, car insurance and if you use a finance broker, loan origination fees. Lender often allow you to finance these ancillary costs as part of the loan but the increase in the amount financed means you’d ultimately pay more in interest over the life of the loan.
Finally, it’s often a good idea to put down a deposit on a bad credit car loan or minimize the changeover price by trading in your old car. Effectively, the more you negotiate for your trade-in or the higher the deposit at the start of your car loan, the lower the principal you’ll be required to repay, and the more you’ll save on interest.
Will I qualify for a Car Loan?
A bad credit rating can be a speed hump if you’re looking to take out a loan to buy a car – but it doesn’t have to be a roadblock.
True, some lenders may refuse to give you a loan or charge you higher interest rates. However, other lenders are comfortable with the risks inherent with providing a loan to those of us with a checkered credit history and have developed lending policies for bad credit car loans.
In order to qualify for finance with bad credit, you will need to satisfy the lenders responsible lending policy and be able demonstrate that you can comfortably manage the car loan repayments.
Qualifying for a Bad Credit Car Loan
Key requirements to qualify for a bad credit car loan are:
- Stable Employment - you should have been in your job for at least 6 months – this confirms you have past any probation period, have demonstrated continuity of employment and a consistent earnings stream to repay the car loan
- Stable Residence - you should have lived in your current home for at least 6 months, preferably where you are noted on the lease
- Sensible Loan Amount - a range of $10,000 to $35,000 is acceptable but don’t go out and try to borrow a large amount for a flash car; you’ll just get knocked back
- Deposit - Whilst not required in all cases, contributing a cash deposit of say 10%, shows that you have been able to save and are financially responsible
- Loan-to-Value ratio - a range of 80% to 110% is generally accepted. Be careful of car dealers that prey on vulnerable people that have a poor credit history, often trying to sell them a lemon. Buying from an auction house is an excellent way to purchase a well-priced car
- Recent credit history - demonstrating regular payments for a personal loan or credit card can assist the approval process. Make sure you pay your bills on time and avoid multiple loan applications - be selective
- Default explanation - be upfront with the reason for the default or slow credit, it will help earn the lender trust and assist you to demonstrate you had intent to pay but not the ability at that time of your life
- Serviceability - you need to be able to demonstrate your ability to service the loan by making timely repayments. Be prepared to submit 90 days of bank statements that detail all of your income and expenses
- Be Honest - the credit process is highly digital with lenders cross checking multiple databases and transaction records. It’s critical to be completely honest in every question you answer on your loan application. If you have a poor credit history, financiers are required by law to scale-up their inquiries and will investigate your loan application closely. It’s better to provide too much detail than leaving any relevant information out.
Bad Credit Car Loans Interest Rate Examples
For your convenience, we have provided a few examples of how we calculate the interest rate or annual percentage rate (APR) on a bad credit car loan.
These are provided for illustrative purposes only and the final interest rate that applies to your loan may differ due to your personal circumstances.
- Example 1: Property Owner - buying a new car valued less than $35,000
Standard carded interest rate is 8.27% p.a.
As you have a small unpaid default of $500 with a telco for your mobile phone, and you have a paid $655 default for a credit card payment you forgot to pay over the holiday break, AFS will apply a price index of 2.5%.
Fixed Interest Rate = 10.77% p.a.* (Comparison rate 12.23%p.a.^)
- Example 2: Renting from a real estate agent - buying a 3 year old used car valued at $25,000
Standard carded interest rate is 11.47% p.a.
As you have a small default of $2,500 with a bank for personal loan you had with your ex-partner, AFS will apply a price index of 2.5%.
Fixed Interest Rate = 13.97% p.a.* (Comparison rate 15.42% p.a.^)
- Example 3: Boarding or Living with Parents - buying a 7 year old used car valued at $19,990
Standard carded interest rate is 14.97% p.a.
As you have a small default of $2,500 with a bank for personal loan you had with your ex-partner, AFS will apply a price index of 2.5%.
Fixed Interest Rate = 17.47% p.a.* (Comparison rate 18.92% p.a.^)
* Interest rate (Annual Percentage Rate/APR) is only applicable for the relevant residential status, specified age of the goods and stated values, and where the applicant has a maximum of two (2) paid or unpaid defaults to a value of $5,000. Finance subject to approval, including the application of applicable lending criteria. Terms and Conditions apply. Fees and Charges are payable. Interest rates vary depending on the applicant's credit score and associated credit risks. Credit provider is Automotive Financial Services Pty Limited – Australian credit licence 383762. ^Comparison rate for AFS Loan Contract and Mortgage is calculated on a loan amount of $30,000 secured over a term of 5 years based on monthly repayments. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
Understanding more about Bad Credit Car Loans
What is a bad credit history?
A bad credit history occurs when you don't repay your debts in accordance with terms of a credit contract and the lender(s) report this to a credit reporting body such as Equifax Pty Ltd ("Equifax" and formerly Veda Advantage Limited). The reasons for recording your bad credit history may include:
- An overdue debt of at least $150 that is overdue by 60 days or more;
- Slow repayment history;
- Rejected or declined credit applications;
- Part IX Debt Agreement between you and their creditor, where the creditors agree to accept an amount of money that you can afford to pay; and
How do I know if I have Bad Credit?
A poor credit history could arise due to a simple missed payment from last month, or a failed business venture from years ago. Whatever the reason, a bad credit history can make getting finance hard.
Your credit history can become impaired due to a range of reasons:
- Falling behind on your repayments
- Missing loan repayments altogether
- Defaulting on a loan
- Applying for credit frequently
- Getting rejected for credit applications
- Exceeding credit limits on your credit card
- Declaring bankruptcy
Most people have a good idea about the state of their credit file but it’s a good idea to periodically request a copy of your credit report from an Australian credit reporting bureau to confirm the information contained in the credit report is true and correct.
How do I get a copy of my Credit Report?
You can obtain a copy of your credit report from:
My Credit File
My Credit File gives Australian consumers access to their credit file held by Equifax Pty Ltd (formerly Veda Advantage Limited) – Australia's largest credit reporting agency.
Can I get a bad credit car loan with unpaid defaults?
Yes, specialty lenders will assess your bad credit car loan application whether you have paid or unpaid credit defaults.
When assessing your loan, a credit provider will consider the size of the defaults, when they occurred, who you defaulted with and whether they have been paid or not.
These factors will have a significant impact of the outcome of the credit assessment.
If the loan is granted, you have to be prepared to pay above the usual market interest rate to re-establish your credit rating.
Is pre-approved finance available?
Yes. If you’ve selected the right lender, you can get pre-approved finance for your car loan so you know exactly how much you can spend on a car and can negotiate with the dealer over price with confidence.
Be careful not to make further loan applications when you’re shopping for a car as this will adversely affect your credit rating.
Also note, that a pre-approval is conditional on the inputs you provide. If your circumstances change, or the type of car you want to buy is different, the lender may vary its pre-approval conditions during its final assessment before they grant the funds.
Can I finance a used car with bad credit?
Yes. Getting car finance for a used car when you have bad credit is definitely possible - you should check out the key requirements to qualify for a bad credit car loan above.
In general, lenders prefer a used car because the price of a used car is lower than a new one which means the loan amount and associated loan repayments will be more affordable.
If the car is only two to three years old, there may also be manufacturers warranty still active on the car which means you won't be up for any unexpected mechanical breakdown costs.
A note of caution though - whilst lenders are quite happy to advance a loan on a used car, they are hesitant if the car you want to buy is too old and has high kilometers. Not only may this pose to be a future mechanical issue for you but it also signals that the car dealer is helping to get you into a reliable car.
I’ve been declined; can I get second chance car finance?
If a mainstream bank or lender has previously denied credit to you for a car loan, there is no restriction in getting a second chance at car finance.
If the loan application was denied some time ago, your circumstances may have improved from a credit perspective, like the time at your job or residence has increased or you’ve paid your bills on time or can demonstrate credit maturity.
Even if the denial was more recent, the information can be thoroughly reviewed and qualified to ensure an optimal and positive outcome.
The key is to make the right application to the right lender.
The ‘right’ application is one that presents all the required credit information to make you look like an acceptable credit risk, which might include things like positive credit information, evidence of savings and details of serviceability.
The ‘right’ lender is one that deals with borrowers like you. For example, while main stream lenders tend to only deal with good credit borrowers, there are other specialty lenders that provide flexibility and understanding in their credit assessment - like AFS.
No credit check on a bad credit car loan?
No, it is not possible to get a bad credit car loan without a credit check.
The National Consumer Credit Protection Act requires credit providers to make sure that a credit contract is not ‘unsuitable’ for a consumer.
The regulator, the Australian Securities and Investment Commission (ASIC) has given guidance that credit providers should obtain and consider a consumer’s credit report as part of their final assessment.
When a credit provider checks your credit file, an enquiry of the search is recorded impacting your score and informing other lenders.
This is why its very important to be selective in making a loan application.
There are a few online sites where the lender or finance broker will ‘ping’ your credit file without leaving a mark. This is used as a crude knock-out process. Whilst a website may suggest this is the case, you can’t be sure and should assume that each loan application or enquiry you make will be recorded against your credit file.
Again, be selective.
Does AFS lend to people on Centrelink?
The short answer is, No.
AFS does not provide credit to consumers that receive Centrelink income support payments, except for the Service Pension (Veterans Payment).
What are bad credit car loan interest rates?
Generally speaking, a bad credit car loan interest rate is usually akin to credit card interest rates (15%-20% APR).
Unfortunately, these interest rates are noticeably higher than the usual market rates on offer to prime borrowers.
Lenders determine the interest rate based on a range of factors, including your credit history, employment history, residential history, the loan amount and the car you wish to purchase.
At AFS, the bad credit car loan interest rate is based on the standard carded rate (based on residential status and the age and value of the vehicle) indexed by a further 2.5% to reflect the higher risk.
This makes the AFS Bad Credit Car Loan product one of the most price competitive loan offers in the marketplace.
Can I get a car loan if I have declared bankruptcy?
Yes, if you have been discharged from a bankruptcy you can still get a car loan.
Unfortunately, you must prepare yourself to pay a higher interest rate than is usually advertised.
Lenders also prefer that at least 6 months has elapsed since being discharged from bankruptcy and that you are able to contribute a reasonable size deposit of approximately 20%.
Also, applicants must not be insolvent or have been subject to a debt agreement (Part IX) or personal insolvency agreement in the past 3 years.
Research more on Bankrupt Car Loans