Bad credit car loans explained

A bad credit rating can be an obstacle if you’re looking to take out a loan to buy a car – but it doesn’t have to be the end of the world. True, some lenders may refuse to give you a loan or charge you higher interest rates. However, other lenders are comfortable with making bad credit car loans.

What is a bad credit car loan?

A bad credit car loan is a specialist car loan for borrowers with imperfect credit histories. Bad credit car loans can also be used by other borrowers who are regarded as high-risk, such as people who are self-employed or who are temporary residents of Australia. As always, lending policies differ from lender to lender.

Should I get a bad credit car loan?

A bad credit rating means that if you go to regular lenders, they will either not approve your loan request, or will offer a loan at a very high interest rate. However, a lender that specialises in bad credit car loans may be able to give you cheaper loans and with faster approval times.

They can also provide credit management suggestions to help you improve your credit rating. Additionally, opting for a bad credit car loan and paying it back as per the repayment schedule can help improve your credit rating, which might then allow you to escape the ‘bad credit’ category. 

How to maximise your chances of getting a bad credit car loan

  • Improve your financial situation and credit rating
  • Maintain stable employment
  • Be honest about your financial position
  • Avoid multiple car loan applications 

What should I consider before taking out a bad credit car loan?

If you’re thinking about taking out a bad credit car loan, use a car loan calculator to research different repayment scenarios. A car loan calculator will tell you whether or not you can afford a loan, based on variables such as loan size, loan term and interest rate.

If your monthly repayments are too high, you might be able to reduce them by opting for a longer loan term and/or a balloon payment at the end. Please note, though, that you’ll end up paying more over the life of the loan. (Conversely, a shorter loan term without a balloon payment would mean lower whole-of-loan costs.)

During your research, you should also weigh up whether you want a variable-rate loan or a fixed-rate loan. A variable loan could go up or down, which would either harm or help your financial position. A fixed loan, though, would never change, which would make it easier for you to budget.

Don’t forget that interest rates aren’t the only cost – there are also various fees and charges to consider. These may include loan establishment fees, loan account-keeping fees, car registration, car insurance. You may be allowed to take out a bigger loan to cover these costs – although that would mean you’d ultimately pay more in interest.

Finally, it’s often a good idea to put down a deposit on a bad credit car loan. The higher a deposit you can afford 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.

How do I get approval for a car loan with bad credit?

Getting a car loan with a poor credit rating can be difficult, but a bad credit car loan can help make your dream of owning a car a reality. Although these car loans are intended for people with bad credit ratings, there are a few things you might want to do to improve your chances.


1) Improve your credit rating 

  • Pay your bills on time 
  • Don't over-apply for credit 

2) Maintain stable employment

  • Bad credit car loan lenders generally prefer borrowers who have been in stable employment for at least 12 months.
  • Lenders like to know that you’re able to hold down a job, so you will have a consistent source of income for making timely repayments.

3) Be honest about your financial position

  • Describe your financial situation honestly to your bad credit car loan lender.
  • Discrepancies between what you say and what’s in your credit file will be easily spotted by a lender.
  • This can make you appear untrustworthy.

4) Avoid multiple loan applications

  • Lots of applications will reflect negatively on your credit file, as will any rejections.
  • Once you’ve found a preferred lender, have an honest in-depth chat with that lender about your position and your chance of securing approval.
  • If the lender gives you the green light, you’ll know your car loan application is likely to be approved.

What is a credit rating?

A credit rating (or credit score) is a number that summarises the credit-worthiness of a particular borrower, which may be an individual, business or government. A credit rating is a used to predict the borrower’s ability to pay back the loan, along with the chances of the borrower defaulting.

How is a credit rating determined?

A credit rating is calculated based on the borrower’s credit history, including factors such as payment history, the amount owed, types of credit, bankruptcy, payment defaults, etc. Though the precise algorithms followed by different lenders and rating organisations are not known, it is safe to say that a borrower’s credit rating depends on their past borrowing and repayment habits.

Who determines my credit rating?

Credit ratings are determined by credit reporting agencies like Dun & Bradstreet, Equifax (previously Veda Advantage), Experian and the Tasmanian Collection Service. Each agency uses its own assessment and scoring methodology. These ratings are then used by lenders to determine the credit-worthiness of prospective borrowers.

If you want to find out your credit rating, you can contact one of those credit reporting agencies to request access to your credit file. Your credit file contains your credit history – what loans you’ve applied for, what loans you’ve been granted and your record of repayments. Your credit file also contains biographical information.  

What is a bad credit rating?

A bad credit rating means that a credit reporting agency has assessed you as a high-risk borrower with a greater chance of defaulting. Each credit reporting agency uses its own algorithm to calculate a credit rating and to differentiate a good credit rating from a bad one.

What are the causes of a bad credit rating?

There are several possible ways you can damage your credit rating, including:

  • Falling behind on your repayments
  • Missing repayments altogether
  • Defaulting on a loan
  • Making too many credit applications
  • Getting rejected for credit applications
  • Exceeding credit limits on your credit card
  • Declaring bankruptcy

What is comprehensive credit reporting?

In the past, credit files only contained negative credit events (such as late payments). Because they omitted positive events (such as on-time payments), they did not provide a fully accurate view of a borrower’s credit history. That meant even a small negative event, like a late bill payment, could damage a person’s credit history.

Hence the introduction, in March 2014, of comprehensive credit reporting, which includes both positive and negative events. That means that consumers have the chance to cancel out isolated negative events with a history of positive events, such as paying off without being late on a single repayment. 

How to improve a bad credit rating?

Having a bad credit rating isn't good. But it doesn't have to be a permanent state. As a general rule, fixing a bad credit rating takes time and requires effort, but it can be done. Here are a few things you can do to help fix a bad credit rating:

1) Order a free copy of your credit report

  • Check your history for accuracy.
  • If you find any errors in the file, bring them to the attention of the appropriate authority to be corrected.

2) Make all future repayments on time

  • Thanks to comprehensive credit reporting, such positive events can help to cancel out the negatives.
  • An obvious way to cancel out a history of late payments is to build up a record of on-time payments.

3) Consider debt consolidation

  • If you have multiple outstanding debts, you can roll several higher-interest debts into a new lower-interest product, paying off the debt will become both cheaper and simpler.

4) Consider setting up direct debit payments

  • Automating loan repayments for credit cards and personal loans can be an effective way of ensuring you never miss a payment

Can I get a car loan with bad credit?

Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

What is a bad credit car loan?

A bad credit car loan is a car loan for borrowers who have ‘bad credit’ or a bad credit history.

Some lenders refuse to offer bad credit car loans, because they believe there is an excessive risk that bad credit borrowers will not repay their loans. However, other lenders are willing to provide bad credit car loans.

Generally, these lenders charge higher interest rates for bad credit car loans than ‘prime’ car loans, reflecting the higher level of risk. Bad credit car loans may also have higher fees than prime car loans.

However, the big advantage of a bad credit car loan is that it allows borrowers with bad credit to access finance. Another advantage is that it could help bad credit borrowers improve their credit rating, assuming they make all their repayments on time.

Do I need good credit to get a car loan?

You don’t need good credit to get a car loan, although the worse your credit history, the harder and more expensive it’s likely to be.

Some lenders will do business only with borrowers who have good credit. However, there are other lenders that are willing to offer car loans to borrowers who don’t have good credit. The catch, though, is that they may charge higher interest rates and fees, and also require more paperwork.

If you don’t have good credit and want a car loan immediately, you can search for lenders that work with bad credit borrowers. If you are able to wait, you can work to improve your credit score and then apply for a car loan once you have good credit.

Are bad credit car loans legit?

Bad credit car loans are legit, although not all lenders and products are created equal.

Some car loan lenders refuse to do business with borrowers who have bad credit histories, but there are others that are willing to provide bad credit. There is a catch, though: some bad credit lenders are disreputable, while some bad credit loans have extremely high interest rates and fees.

That’s why it’s important to do your research and compare bad credit car loans before you submit an application.

 

Who provides bad credit car loans?

Lenders that provide bad credit car loans tend to be smaller challenger lenders rather than the bigger banks.

Bad credit car loans are a niche product. The bigger banks tend to focus on mainstream car loan finance for borrowers with better credit histories. That’s why smaller lenders tend to be the ones that provide bad credit car loans.

Bad credit car loans can have high interest rates and fees, so it’s important to compare options before submitting an application.

Can I get a no credit check car loan?

Even if you have bad credit or no credit history there are loans that are available to you through specialised lenders. Some lenders in Australia advertise car loan offers without running credit checks, however, the Australian National Consumer Credit Protection act requires lenders to loan money responsibly, so credit checks are normally required by all responsible lenders. 

What is credit history?

Your credit history is a record of the dealings you’ve had with credit providers such as banks, credit card companies, mobile phone companies and internet companies. Your credit history records how successfully you’ve managed your repayments. It also records how many credit applications you’ve made and how many of those were rejected.

Credit providers refer to your credit history when deciding whether or not to extend you credit. Missing repayments is a bad sign; making too many applications or having applications rejected can also be a bad sign.

Credit infringements can remain on your credit history for five years – or seven years for serious infringements.

Can I get a car loan with poor credit?

Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

Do low interest no credit check car loans exist?

Some companies will advertise no credit check car loans, however under the Australian National Consumer Credit Protection act, credit checks are required by all responsible lenders, so such lenders are likely to have high interest rates. Depending on your income and credit history, you may qualify for a low interest StepUP loan from Good Shepherd Microfinance.

What is a credit score?

Your credit score is a number that represents how credit-worthy you are. The higher your credit score, the more credit-worthy you are and the more likely you are to receive loans from credit providers.

There is no industry standard for credit scores – different credit reporting bodies use different methodologies. For example, Equifax gives consumers scores between 0 and 1,200; Illion (through the Credit Simple service) gives scores between 0 and 1,000; and Experian gives scores between 0 and 999.

When it comes to car loans, lenders tend to offer lower interest rates to borrowers with better credit score. There are steps you can take to improve your credit score, including paying bills on time and paying off existing loans.

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments. 

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

Can I get a no credit check car loan?

You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.

Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.

That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.

Where can I find lenders who offer no credit check car loans?

There are companies that claim to offer no credit check car loans. However, you may find that companies that offer no credit check car loans have high fees and high interest rates.

You might be better off finding a specialist lender who will look at your credit history and income, who will decide whether or not you are able to responsibility pay back the loan. Alternatively, you could contact a car finance broker.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

Can I get car finance on a pension?

 

Yes, as long as you meet basic criteria set out by lenders you are eligible for car finance. Your interest rate will be determined based on your financial history which can be found in your credit report, your income and any property you may own.

Comparing car loans for pensioners before you settle on one is important though, if you want to secure the best possible loan for your circumstances.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

Should I service my own car?

There are also costs associated with vehicle ownership, such as paying for petrol and the obligatory ongoing maintenance. But should you cut down on costs by servicing your own vehicle?

If you’re considering getting out the tool box, spanner, and grease-laden towel, you need to carefully weigh up the risks and benefits. A trained mechanic will need to complete certain tasks, while you may be perfectly capable to handle other aspects yourself.

If you’re short on time, it may be worth paying for the convenience of a full vehicle service. However if you’re trying to slash your expenses, there are some basic maintenance tasks that you can complete yourself.

You should call a mechanic if you’re unsure about a vehicle maintenance task you’re about to take on. However there are a number of maintenance tasks that you may be able to complete with your own two hands including:

  • Replacing your car battery
  • Changing the oil
  • Replacing worn windscreen wipers
  • Replacing blown fuses

Remember to keep your car’s body in good condition, by washing and applying a protective wax on a regular basis, too.

Always check your car warranty agreement as some new car purchases come with an extended car warranty provided your services are conducted at the vehicle service centre where you purchased the car. In these circumstances, you may find the service fee is capped, alleviating some of the maintenance woes.

Can I get a discounted student car loan?

Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.

Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.

As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.

How much can I get towards a new car as a single parent?

It really depends on your financial circumstances as to how much a lender will grant you towards a new car as a single parent. With most lenders, the smaller the loan you apply for, the higher your chances are of approval, so getting a cheaper car or adding some savings of your own, may be a valid option if you are struggling for approval on a car loan.

Can you get a car loan as a single mum?

Getting a car loan can be tricky if you’re a single mum, but it’s not impossible. Juggling your finances can be difficult, particularly if you are reliant on a sole income or on Centrelink payments (or a combination of the two), and having a car is a necessity rather than a luxury for many who have to look after children. Luckily there are specialist providers and services that can help you get the loan you’re after, even if you’re in a tough spot financially.

Can I buy a car as a student?

Buying a car is a huge financial decision, and shy of marriage and purchasing a house (or perhaps around the world travels), it may be the biggest financial decision you make. But if you’re looking at your empty pockets, don’t despair! Your dream of owning your own car could become a reality, if you look for and compare the right car loans for your circumstances.

Can I get a car loan if I am on disability benefit?

Yes, there are some lenders who will consider your application if you are on a disability pension. As long as you have an income, usually of over $400 a week, there are lenders that are willing to supply you with a loan.

There are also micro-financing charitable organisations that provide low interest loans for people on low incomes for certain necessary amenities, such as cars, if they match the specified criteria.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

Does having a guarantor on a car loan lower your interest rate?

While it’s not necessarily a guarantee, having a guarantor on your car loan will improve your chances of having your application accepted, and may mean that you are able to attain a lower interest rate loan.

Having a guarantor with excellent credit history and/or is a property owner reduces the risk to the lender because the payments are guaranteed by someone who is considered to be financially secure and reliable.

As such, even if your credit history isn’t perfect, a guarantor may be able to help you secure a lower rate from some lenders.

Do banks do guarantor car loans?

Yes, some banks will be willing to provide guarantor loans, including Commonwealth Bank, NAB, Westpac and ANZ, though the terms for signing up to a banker-issued guarantor car loan may not necessarily be as good as another lender.

You should keep in mind though that these larger banks, because of their monopoly of the market, tend to have higher interest rates than the smaller lenders.

In comparison, smaller loan companies and credit unions tend to be more competitive in their battle for your business. There are plenty of lenders willing to lend to people with bad credit or no credit history who have willing guarantors.

How much is my car worth?

If you own a car, it may be something that can help you bring down the cost of your next vehicle purchase through its sale. However, before you can do that you’ll want to find out how much your car is worth.

Your car’s worth can depend upon various aspects, including:

  • Age
  • Condition
  • Model and make

A great starting place for aspects of this includes websites that offer online valuations, allowing you to enter your car’s make, model, year, badge and description, with the listed results displaying a price guide based on both selling your car privately and through a dealership.

Both have pros and cons, as cars can be very profitable, something that will no doubt impact any chance you have to make the most of your car’s value upon sale. Dealerships will try to profit on your trade-in by buying it for less than they can sell it for, so you shouldn’t expect the same price selling a car to a dealer that you would necessarily get selling a car privately.

Who can go guarantor for me on a car loan?

Anyone who knows your circumstances and trusts you to meet your repayments is someone who could potentially go guarantor for you on a car loan, providing that they have an excellent credit history and/or are a home owner.

Parents are the most likely to be accepted by lenders as guarantors, but immediate family such as grandparents, adult children, siblings and de facto partners are also accepted. If you want a friend of colleague to go guarantor for you it is possible but may require a specialist lender and may incur a premium fee.

Who can be a guarantor on a car loan?

While a guarantor for a car loan is often a parent or relative, to be accepted as a guarantor, that third party must be someone with very good or excellent credit. They may have to put an asset of theirs against the loan as collateral, such as their car or home equity.

It’s important for both parties to really consider the risks involved before signing the dotted line of a guarantor car loan, including:

  • What is your financial situation like?
  • How secure is your current income?
  • Are you likely to default on the loan?
  • How much will the guarantor be required to repay if you default?
  • How will this repayment impact the guarantor’s ability to service their existing financial commitments?
  • Will your relationship be affected if the situation sours?

Ensuring you can answer these questions will help you and your potential guarantor decide whether a guarantor car loan is right for you.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

Where can I find car loans for single mothers?

Single mothers can sometimes find that due to their circumstances the bigger banks can be less inclined to lend to them, but there are smaller companies and specialist lenders who can be willing to provide loans to people in a range of circumstances.

Single mothers could benefit from getting in touch with a car finance broker, as a broker is likely to have knowledge and access to options that are suited to their needs.

Advantages to using a broker:

  • Finance brokers often don’t charge for their services as they work on a commission basis from lenders.
  • Brokers will have industry knowledge and contacts within lending companies and is therefore more likely to be able to find the best deal for your circumstances.
  • Brokers are qualified professionals who are licensed under the National Consumer Credit Protection Act so have an obligation to follow responsible lending practices and to work in your best interests.

Find car finance through a broker.

I’ve been denied a car loan before; can I still get car finance?

Even if you’ve been denied a car loan before, you might still be able to get car finance. The key is to make the right application to the right lender.

The ‘right’ application is one that makes you look like an acceptable risk, which might include things like improving your credit score, increasing your savings rate and accumulating a bigger deposit.

The ‘right’ lender is one that deals with borrowers like you. For example, while some car loan lenders only deal with good credit borrowers, there are others that specialise in bad credit or poor credit borrowers.

Can you put a deposit on a car to hold it?

It’s up to individual car dealers to decide whether to promise to hold on to cars in exchange for deposits.

Some car dealers will request a deposit and promise, in return, to hold on to the car for a certain period of time. Others will request a deposit but make no guarantees, other than to return the deposit if they end up selling the car to someone else.

Some car dealers ask for deposits; others don’t. If you get asked for a deposit and you decide to pay it, make sure the dealer gives you signed paperwork before you make the payment and a receipt after you’ve made the payment.

Does my insurance cover other cars I drive?

If you’re driving someone else’s car, say your friend’s, and you’re involved in an accident, whose insurance is responsible, yours or your friend’s? Does car insurance cover driving other people’s cars?

The short answer is yes. A few car insurance providers offer insurance cover for people to drive someone else’s car. It’s always better to double-check this before you get behind the wheel.

If you’re not covered, you can opt for non-owner car insurance which lets you drive someone else’s car and be protected against liability. However, you will not benefit from other coverage such as damage to the vehicle, replacement rental or medical expenses.

Getting comprehensive insurance driving other cars can be done with temporary insurance. It’s recommended that you do this if you plan to drive someone else’s car, even for a short duration. You can choose between policies that cover you for a fortnight, a month or even a pay-as-you-drive option with temporary insurance.

Alternatively, you can ask the car’s owner to check with their insurer if you can be added to the policy. This will ensure that you are covered fully with comprehensive car insurance driving other cars. Do note that adding you could increase the annual premium for the owner.

Can casual employees get car loans from ANZ?

Casual employment is common, and if you are a casual employee, it doesn’t mean that you’re not eligible for a car loan. But you’ll need to prove your repayment capability while applying for an ANZ car loan for casual employees.

Before applying, it’s important to consider the minimum eligibility criteria, which stipulates that a borrower must be an Australian citizen, permanent resident or have a valid visa, is at least 18 years old, and earns an annual income of at least $15,000. 

Also, applying for a loan amount lower than what you can afford and working for some months before applying could increase your chance of approval. If possible, consider submitting a letter from your employer that will prove income stability. Lenders are more likely to approve your application if you’re able to demonstrate your ability to save, reducing their risk.

How to apply for pre-approval of a car loan from RACV?

If you’re planning to apply for a car loan with RACV, the best way to start is by having a clear picture of your requirements. By getting pre-approval on your car loan, you’ll be able to go shopping for your new car with a definite budget that will help you narrow your search. Once you’ve decided to buy a car with the help of a loan, you may have even identified the type of car you would like to purchase, you can seek pre-approval on a car loan from RACV. 

You can apply for pre-approval by filling out a form online and uploading the relevant documentation regarding your identification, income, debt and credit history. Once you submit your application, RACV will review and verify the documents. If you meet their eligibility criteria, you will get pre-approval for the amount they are willing to lend to you. With this pre-approval, you can go car shopping with the confidence of knowing what you can afford.

Can you terminate your chattel mortgage early?

Some lenders might provide you with an option to terminate your chattel mortgage early by repaying the full amount before the term is over. This way, your overall loan term decreases, therefore reducing the interest you need to pay.

It’s important to note that some lenders might charge a fee for you to pay off your chattel mortgage early. So, if you’re planning to terminate your chattel mortgage early, make sure you check if your lender allows you to do this. You should also determine if there are any additional fees or charges that you would need to pay to do this.

How does a chattel mortgage work?

A chattel mortgage is a loan issued to a person or a corporation for movable property. The movable property could include automobiles, yachts or boats, mobile homes, caravans or trailers. The term chattel in chattel mortgage refers to the movable property  used as collateral or security for the loan.

In a chattel mortgage, the loan is backed by 'chattel,' which the lender retains ownership of until the full loan has been repaid. Usually, the interest rate charged on such mortgages is lower. Repayments can also be fixed, which means you know exactly how much you’re repaying each month.

The most significant benefit for the lender is that the properties held as insurance are movable and can be sold easily if the borrower defaults.

Can an individual apply for a chattel mortgage?

Lenders offer chattel mortgages as a way to finance vehicles used for business purposes. Companies, as well as individuals, are eligible to apply for and receive chattel mortgages. The essential eligibility requirement is that the vehicle is used for business at least 51 per cent of the time. If you’re a tradesman and require a new utility vehicle to move equipment, you can apply for a chattel mortgage to finance the purchase.

A chattel mortgage for individuals is an option if you’re self-employed and have an Australian Business Number (ABN). You’ll also need to be registered for the Goods and Services Tax (GST) and have a clear credit history. Like all other loan types, you’ll have to prove your capability to service the loan to qualify for a chattel mortgage.

You’ll retain the ownership while the lender holds the vehicle as security for the loan in a similar way as they would a property with a home loan. You repay the borrowed amount in predetermined monthly instalments. Once you repay the entire loan amount, the lender will remove the mortgage.

What are the chattel mortgage tax benefits?

Buying a vehicle with a chattel mortgage can help to reduce your tax burden. The tax benefits you can get from a chattel mortgage include:

  • Goods and Services Tax (GST): GST is paid when you buy a new vehicle. You can claim the GST credit for vehicles and other goods or services used for commercial use. The GST paid when you buy the car is claimed as an Input Tax Credit if your business is registered for the GST in your Bank Activity Statement (BAS).
  • Interest payments: You can claim the interest paid on your chattel mortgage as a deduction in your annual tax returns.
  • Depreciation: The longer you own the vehicle, its value will depreciate, and you can claim this depreciation as a tax deduction.

You should consult an experienced tax professional for more information about chattel mortgage tax benefits.

What is repayment frequency?

Repayment frequency is how regularly you have to make car loan repayments to your lender. The most common repayment frequency is monthly, but many lenders will also give you the option of making fortnightly or weekly repayments.

Where can I find lenders who offer no credit check car loans?

You can find lenders who offer no credit check car loans through comparison sites like RateCity or by doing an online search.

One thing to bear in mind is that lenders who offer no credit check car loans are likely to charge higher interest rates and higher fees than on car loans that include a credit check. Also, lenders who no credit check car loans might expect you to pay a higher deposit. You might also be expected to provide security.

Lenders regard no credit check car loans as riskier than other car loans, which is why it’s a niche product that often features special conditions.

How much can I get towards a new car as a single parent?

It really depends on your financial circumstances as to how much a lender will grant you towards a new car as a single parent. With most lenders, the smaller the loan you apply for, the higher your chances are of approval, so getting a cheaper car or adding some savings of your own, may be a valid option if you are struggling for approval on a car loan.

Can I get a car loan if I am on disability benefit?

Yes, there are some lenders who will consider your application if you are on a disability pension. As long as you have an income, usually of over $400 a week, there are lenders that are willing to supply you with a loan. There are also microfinancing charitable organisations that provide low interest loans for people on low incomes for certain necessary amenities, such as cars, if they match the specified criteria.

Can I get a loan if I am on aged pension?

Yes, there are certain lenders that provide loans for people on aged pensions. Your viability for a loan will be assessed by a lender by your credit report and your income. They will also take into account any assets you have that you may want to secure the loan with. The better your credit score, the more likely you are to be accepted for a loan, and the lower the interest you will have to pay on that loan.  

If you have a bad credit rating and are on an aged pension however, don’t despair, because there are specialised lenders who still may be willing to provide you with a loan.

What is a refinance?

A refinance is when you swap one car loan with another. For example, you might take out a car loan with Lender X because it is the best on the market at the time – but two years later, you might switch to Lender Y because you discover that it now has the best loan. Conditions and fees often apply when you refinance.

What is a redraw facility?

A redraw facility allows you to re-borrow any funds you may have repaid ahead of schedule – although conditions and fees often apply. Not all car loans come with a redraw facility.

Final thoughts

Think carefully about your options before getting a bad credit car loan. If you don't think you can keep up the repayments, you may want to reconsider.

For more support managing your personal finances, check ASIC's Moneysmart, or contact the National Debt Helpline on 1800 007 007.

Before you apply:

The following car loan offers are not specifically bad credit car loans. We’ve shown you these car loans to help you compare what’s available in the Australian market, and make a more informed financial decision.  

Before you apply for a car loan, consider checking your credit score and contacting the lender to discuss your situation. A financial counsellor may also be able to provide more specific advice.