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Life can be tough as a single parent. You’ve got to do everything and be everywhere at once. Many single parents find it’s vital to have a car to meet the ever-mounting demands of family life. Here’s what you need to know if you’re in the market for a single parent car loan.
What car loans are available to single parents?
If you depend on a single income it can be difficult to meet the financial requirements that some lenders set. Relying on one income can make being accepted for a car loan tricky, particularly if you’re employed part-time or your income is subsidised by Centrelink payments or Parenting Payment Single (PPS).
Luckily, there are car loan options available to you if you are a single parent.
- Secured car loans: there’s less risk to a lender when you secure the loan against an asset - usually the car itself. Keep in mind you will likely need to have regular income and good credit to be approved.
- Low-doc car loans: this loan type is ideal if you are self-employed and work from home, especially if you’re also taking care of children full-time.
- Guarantor car loans: if you have a family member or a friend with good credit, this is another option. There is less risk to the lender if someone supports your loan application.
- Centrelink accepted loans: if you are already receiving income suppport from Centrelink and have a regular income, you may be eligible for a loan from some lenders. Check the eligibility criteria to see if they say “Centrelink accepted”.
- Charitable organisations: some charitable organisations partner with banks to provide finance for single parents and families on low incomes for a range of purposes.
Why might a single parent struggle to get a car loan?
Unfortunately, some single parents find it tricky to get car loans.
This is because single parents may be:
- Reliant on a sole income
- Working part-time to care for their children
- On PPS (Parenting Payment Single, also known as parenting pension payments)
- In debt, or have a bad credit history
Relying on credit cards, Centrelink and PPS payments is a necessity for many single parents and these often result in a bad credit history. According to ACOSS (Australian Council of Social Service) “less than half of sole parents on social security payments get child support from their former partners”.
Who can help me get a car loan as a single parent?
It might be a cliché, but the best person to help you in your car loan journey is yourself. Doing your own research is the best way to find the right car loan for you. Comparison tools, such as tables and calculators, can help you find car loans that suit your needs.
A comparison table can help you to compare rates, fees and features involved with some of the loan types mentioned here. For example, you can check the criteria of one secured loan against another to find the loan with an income threshold that matches yours. Car loan calculators show you how much you would need for repayments. This is very helpful when you’re independently managing the family budget.
Single parents can also benefit from getting in touch with a car finance broker. Brokers are likely to have knowledge and access to options that are suited to their needs.
There are two main advantages to using a broker:
- Generally, finance brokers don’t charge for their services, as they receive commission payments from lenders, and
- If you approach lenders directly, they will only recommend their own products. A broker can recommend car loans from a range of lenders and find the best deal for your circumstances.
Finance brokers are qualified professionals who are required to follow the National Credit Code and to observe responsible lending practices.
Can I get an unsecured car loan as a single parent?
Lenders generally are reluctant to lend out large sums of money. This means single parents with lower earnings may only be accepted for a loan to buy a cheaper, second-hand vehicle rather than to buy a new car. However, some lenders won’t allow used cars to be used as security for a secured loan, meaning an unsecured loan might be your only option.
The downside to an unsecured car loan is that you typically pay higher interest rates compared to a secured loan given increased risk to the lender. While you may pay less for the vehicle, you may need to pay to more for the loan, or greater interest costs.
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What documentation do single parents need for a car loan?
If you’re applying for a car loan, you’ll need the following:
- Personal identification (eg driver’s licence or passport)
- Proof of income (including Centrelink or Parenting Payment Single - PPS)
- Copies of bank statements and bills
- Information on any debts you have (eg credit cards)
- Information about the car you want to buy
The key difference for single parents involves documentation. It is crucial that, if you’re on Centrelink payments, you choose a car loan that allows for this to be considered as income. You should also check the minimum income you need to be eligible for the car loan. This is typically around $15,000 to $20,000 a year.
Can I get a car loan on Centrelink payments?
Lenders can consider your employment status a sign of how likely you are to meet loan repayments. If you receive Centrelink or PPS payments, there are some factors that may improve your chances of receiving approval on a loan.
- Having a part-time job
- Being an Australian resident
- Having income or benefits worth more than $400 a week
Are there banks that specialise in single parent car loans?
While there aren’t any lenders who specifically focus on single parents, there are plenty who lend to less creditworthy borrowers. Single parents may find smaller lenders are more helpful than the big banks can be more helpful. If you’ve found a smaller lender you think might suit, ask whether they will lend to someone in your financial situation.
It’s important you’re confident that you’ll be approved for a car loan before you apply since a rejection can negatively impact your credit score. If your credit history is a concern, you could consider bad credit specialist lenders for a loan. Keep in mind that their interest rates will likely be higher than if you have a good credit rating.
What about single parents with bad credit?
There are a number of lenders who specialise in bad-credit car finance. If you’re struggling for loan approval as a single parent because of your credit history, these may be an option. But bad-credit car loans often come at higher interest rates. When supporting a family on your own, you may struggle to meet the high interest costs.
Think carefully too about whether you can afford the repayments on a car loan. If you don’t think you can keep up, you may want to reconsider. Use our car loan calculator to see what your repayments might be.
Improving your credit score:
Consider improving your credit before applying for financial products. This will probably make it easier to receive approval on a car loan. Here are nine ways to improve your credit score.
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.
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.
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.
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.
There’s no set number. That’s because borrowing capacity differs from person to person, as well as lender to lender.
Lenders don’t give out car loans unless they’re confident they’ll be repaid. Each person is different, so the amount of money one person can successfully borrow will differ from another person’s number. Also, each lender uses its own formulas to calculate borrowing capacity – so Mr & Mrs Smith might find that while Lender X will give them a car loan for $20,000, Lender Y will offer only $18,000.
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.
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.