Can I Get a Car Loan with Bad Credit?

Finding a suitable finance agreement to purchase a vehicle is hard work at the best of times, but can feel infinitely tougher when looking for a car loan with bad credit. However, there’s no need to start waving the white flag. Financial options may be available.

Here’s everything you need to know about the process of trying to get a car loan with bad credit in Australia.

Why Does Bad Credit Impact Your Chances?

Most people acknowledge that low credit scores, especially those below 509, will impact their opportunities to take out a car loan, but many fail to appreciate the reasons for it. Essentially, you need to put yourself in the shoes of a lender. If you have a history of missed payments, it statistically increases their risks.

Lenders know that a larger percentage of applicants with bad credit will default or fall behind on payments. Therefore, they have to limit their potential exposure. To do this, they will do one of two things.

  • Offer a deal at a higher interest rate.
  • Reject the application altogether.

While the driving regulations across Australia vary between territories, this situation in relation to bad credit loans is a standardised approach. As an applicant, then, you need to accept that having bad credit may limit the amount of money you can borrow or the types of loan on offer.

Likewise, lenders may put your application under greater scrutiny to confirm that they deem you capable of meeting the repayment terms. But while poor credit does make the application process more difficult, it needn’t be a death sentence to your car ownership hopes.

Car Loan Options When You Have Bad Credit

Before looking at bad credit car loan options, several steps can be taken to improve your situation. Quick credit-building strategies can make a minor difference, while a bigger downpayment can make your application become viewed as less risky by the credit agencies.

Several lenders and dealerships that specialise in car loans for bad credit exist in each state and major city. The three pathways that stand are geared towards applicants in your situation are:

Bad Credit Secured Loan

An unsecured car loan for people with bad credit is the ultimate risk for a lender. Therefore, bad credit car loans focus on secured payments. This is essentially means that you will use the car as collateral against the repayment plan. If you default on payments, the lender can repossess the vehicle before selling it to make their money.

Secured loans also offer lower interest rates than unsecured loans, which prevents your bad credit car loan from spiralling out of control. Therefore, it can be deemed a suitable agreement for both the lender and the borrower. Several dealerships can offer this type of secured loan while third-party lenders may be available too.

Guarantor Loans For Bad Credit

A guarantor loan is a loan in which someone you know “the guarantor” agrees to make the repayments if you fail to do so. They become the safety net that reduce the risks for lenders and are also an ideal option for youngsters with no credit history. When you have bad credit, they increase your hopes of acceptance and can also secure a lower interest rate.

The guarantor loan does put your guarantor at risk, though. So, you must only enter the agreement when you have full intentions of making the repayments. If they are forced into making payments on your behalf, you can expect to lose the friendship. It is also possible for the guarantor to subsequently claim ownership and sell the vehicle.

No Credit Check Car Loans

Although rare nowadays, no credit check car loans are perhaps the quickest route to securing a loan on a vehicle, and can be completed within minutes. However, avoiding documents and credit checks will result in very high interest rates. The term of the agreement is often longer while a larger downpayment is required too. They should only be used under the right circumstances.

Still, if you have previously had credit rejections, this is a great way to overcome the hurdles. If you meet the repayments, they can have a hugely positive impact on your subsequent credit score. Their accessibility makes them very popular with certain demographics, especially those wanting a reliable car that will last for several years.

Alternative Finance Options

While car loans for individuals with poor credit are available, they won’t be open to everyone. Similarly, you may find that the interest rates and other terms of the agreement do not align with your requirements. Regardless of the reason for wanting to seek alternative methods, there are several ideas to consider.

Some of the most popular options when a traditional car loan cannot be agreed include;

  • Borrowing money from your spouse or a relative. This may manifest courtesy of a cash loan or by them taking out a loan with a private agreement that you will pay them back. However, the latter idea should only be taken when they are aware of the dangers, and you are capable of handling the agreement.
  • Making a cash payment. Buying a vehicle in cash removes the need for any agreement. Whether you need to sell assets, including your existing car, or save money revolves around personal circumstances. Cash purchases often unlock better haggling opportunities too, which is a bonus.
  • Car leasing. Some lenders will view car leasing agreements as a smaller risk than car loans. This is because you simply pay to rent the vehicle. They’ll take it back as soon as payments are missed, reducing their risks. Given depreciation rates, it’s not a bad move for you either.

While a little less likely, some people find that personal loans (bank or private) that do not stipulate the purpose of the agreement can be struck. Credit cards and other resources may also be used to facilitate the car purchase, but must be used with caution. Setting yourself up for further financial problems is the last thing you need.


Bad credit will inevitably reduce the car loan opportunities, but most applicants can find ways to bypass the obstacles. Even if it means accepting a slightly higher interest rate or altering your expectations on what model of car is right for your next purchase, the road to owning a new vehicle starts now.

Disclaimer -This page/article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

Credit Representative Number 496186 is authorised under Australian Credit Licence Number 389328.
ABN – 63 007 814 458. Member of MFAA.

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