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.
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.
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.
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.
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.
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.