- in Loans
Cars are an expense, there is no doubt about it. But, in a country as large as ours sometimes there is no escaping the fact that you need four wheels to get around.Having bad credit should not be a reason to preclude you from getting a car loan.
Cars are also expensive, if you are not in the fortunate position where you can go out and buy one with the savings you already have tucked away then you are going to have to resort to a car loan in order to get mobile.
This is a fairly long article because I felt that there are a number of important points to cover, if you are strapped for time, I have bullet pointed the vital things you need to know about obtaining a car loan when your credit is less than, shall we say, ideal.
· Be Honest – lies won’t help. Financiers are experts at spotting fraud and obtaining a loan by deception is illegal. Don’t be tempted to disguise anything or adjust earnings figures.
· Be Prepared – Prove that you are a responsible borrower by being thorough with your loan application and providing accurate bank statements and loan payment histories.
· Be Frugal – Save like crazy to pay off other debts. The lower your outstanding balances, the greater your chance of success when applying for an auto loan.
· Be persistent – There are hundreds of loan companies out there, one of them will want your business, but limit your choices to lenders who are members of the Credit Ombudsman Service, so you have legal protection if a dispute arises.
· Be Thorough – Finding a loan is half the battle. Review the contract thoroughly, watching out for onerous terms, specifically, additional fees or early repayment charges.
How easy is it to obtain car finance for people with a bad credit history?
This is an area that can be an absolute minefield, especially if you have previous debts and your credit rating is not exactly spotless. You may think that because you have a bad credit history that there is no way that you will be able to obtain a loan for a new car, that is not the case.
Luckily for you there are a number of lenders out there to compare that will offer you a bad credit car loan.
Second chance car loans as they are also known are becoming more popular.
This was something I had to deal with a number of years ago when I was trying to obtain credit for a new car in order that I could start a new job approximately 70 km away from my house.
Public transport you will understand was not an option.
The main thing to note is that there is no such thing as a cheap car loan where bad credit is concerned. While you may find a lender, depending on your circumstances, the financing arrangements may be rather expensive.
What sort of difficulty might I face?
One of the main things you will be assessed for when you apply for car finance and you have a bad credit history will be previous non-payment and slow payment of previous debts along with the size of any defaults that you may have made during the loan period.
While a small loan default will probably be overlooked by most lenders if you have a consistent history of non-payment, obtaining a loan becomes far more difficult.
There is no one size fits all piece of advice that I can give you in order to make this process easier. You will need to research and test a number of lenders in order to find the one that is the right fit for you.
However, I’ve tried to make it as easy as possible in this article by steering you in the right direction.
Car Loan Interest Rates and Low Interest Car Loans
The best car loan rates for people in Australia are unfortunately reserved for people who have a spotless credit history, for those of us deemed more risky our chances are assessed on a case-by-case basis.
On the low end the standard interest rate can be achieved (around 7-9%) even with a bad credit history, but, the worst case scenario would be an interest rate somewhere in the region of 30% maybe even higher.
You may wonder why lenders penalised people with bad credit.
Surely these are the people who cannot afford such a high rate of interest on their auto finance loan.
The fact is, lenders are incredibly risk averse and those with previous payment history of default are considered a high risk proposition.
If you are deemed to be a high-risk category and likely to both default on your car loan you will be offered a very high rate of interest to hedge against this risk or you will be declined completely.
If you can ignore the sales pitch in this video, then go ahead and listen, as the advice is fairly sound.
Because lenders will assess you using your previous credit history along with the information that you supply them at the time of the application it is very important that you get all of your information prepared and ready to present to the lender when they ask for it.
If you are seen as someone who is organised and willing to help the process along as much as possible this can only help your application.
Now, if you take time to understand what liabilities you have that any lender will deem risky you can set to rectify those as soon as possible therefore increasing your chances of having the loan approved.
Let’s take a look at what you can do before you start the application process.
What you can do in advance of applying for a loan
When you submit your application the number-one piece of advice I can give you is to not lie on the application form.
Not only would you be committing financial fraud but at some point during the process you are likely to be found out.
Finance companies are experts in detecting fraudulent applications. A number of cross checks will be carried out and your credit history will be analysed and if you are caught hiding anything there is a large chance of having your finance application rejected not to mention is the legal implications of committing fraud.
If you have had a recent bankruptcy, it is going to be difficult to obtain any sort of finance for a new car.
The best way around the situation is to discuss the land to discuss with the lender the situation upfront.
If your bankruptcy is not being discharged it is very unlikely that you will be deemed suitable for a loan however it is been more than six months you may be eligible for auto finance again.
To help your chances you need to keep accurate records
You will need to show records of any other loans that you have , if you have recently started paying off other loans and you have built up a good track record of six months of consistent payments or more, this will go a long way in showing potential lenders that you are serious about paying off your debts.
Start saving a little bit of money each month and keep a record on your bank statements. If you can show some additional savings in tandem with other payments your are making to show your debt is slowly going down and your cash savings are slowly going up your application will be looked on favourably by most lenders.
What lenders want to see, at the end of the day, is that you are taking a responsible approach toward your finances.
Specialist lenders who deal with people in debt, are used to seeing people whose financial situation is less than ideal.
Therefore, you should not expect that these institutions will not want to deal with you it is all about painting your finances in the best possible light.
Ideally you want to keep a record of bank statements showing the above-mentioned trends for at least six months or more.
Three months would be okay as a starting point but remember they are looking at your credit history the clue is in the name.
They want to see history, a reliable history at that. You need to do all you can to prove that you will not repeat any past mistakes you may have made
Car Loans for Unemployed People with Bad Credit
There may be one or two lenders out there who will lend to you if you are unemployed however I am not going to lie to you and tell you that this will be an easy thing to make happen.
At the end of the day the finance institution wants to see a consistent stream of income coming in so that they know you will be able to repay the loan.
The majority of major banks and financial institutions will look for a stable of them but employment history of at least three months but ideally 12 or more.
It does not really matter if you are employed full-time, part-time or casual basis as long as you can show a consistent employment history which will allow you to support any new debt payments.
As well as showing early history of employment lenders will also look at your personal stability. If you show signs of moving house often this can be a sign of instability and may have a negative impact on your loan application.
A small tip, something that I learned here is to do what you can to prevent your address from changing often by getting some mail such as a bank or credit card statement sent to the address of a trusted family or friends for a period of time.
If this is something that your parents are happy to do or if you have brothers or sisters I strongly recommend it.
While your financial situation is uncertain, it is quite regular occurrence that you may need to change address when you’re renting by downsizing or even upsizing.
This may be through no fault of your own however it’s a black mark whether banks are concerned so keeping that regular address history with a close friend or relative will help you along the way.
I’ve written a separate article by obtaining loans of people on Centrelink which you can find here.
These loans are typically for a very small amount of money are not specifically for cars, so, if you don’t have a job and you’re struggling to find a lender who is willing to talk to you this could be an option
No Credit Check Car Loans
There is really no such thing as bad credit car loans with guaranteed approval even if you have a spotless credit history, there will always be an obligatory credit check and interrogation of your financial history.
There will always be checks to make however there are a few steps you can take to make yourself a much better candidate and increase your chances of getting approved and are largely as to do with how the loan provider will perceive your application and the risk you present to them as we mentioned earlier.
You should pay to get a copy of your personal credit history so you can see what blemishes on the public record and then you can take appropriate steps towards fixing them.
You should be able to disclose absolutely everything to the loan provider in your application. This is vital.
If your loan application gets to the stage of being considered by an underwriter, they may want to discuss these previous blemishes on your record. By knowing about them in advance you stand the best chance of being able to provide a legitimate answer and persuade the lender that your application should be approved.
The best way to think about approaching your application is to admit that you have made mistakes in the past but you have since changed and you are now financially stable and your willing and able to repay your debts.
You can use your personal credit history to see the negative points that will hurt your application and then come up with the story as to how you will not make the same mistakes again.
Don’t be afraid to approach a reputable broker or online finance company to discuss your circumstances in advance of making the loan application.
They will see thousands of customers just like you who may have had trouble in obtaining finance and they will be held to give you the right answers to the questions and maybe even point you in the direction of them the brokers who will be most amenable to providing you with finance
Obtaining credit for a car when you have a poor credit history is difficult, but it is possible. You really want to be loaning the least amount of money possible.
Find a second-hand used car, preferably from a private seller as it will be much cheaper than going to a car showroom and haggle like your life depends on it to bring the price down.
The less you have to borrow easier it will be to finance and the quicker it will be to pay back the loan.