I have defaulted on my credit file …….will I be able to purchase a car????
There are financiers who provide bad credit car loans and specialists who can source them on your behalf; however, your eligibility will be determined by the nature and the severity of the credit impairment. Keep in mind that a car loan is securitized by the vehicle and less risky than an unsecured loan.
Car Loans for People with Bad Credit
Financiers who provide this type of lending have the following policy regulations:
- They can accept both paid and unpaid defaults
- Paid defaults are preferable, and the greater the time since the payment was made the more favourable it will be to the lender
- Unpaid defaults up to $5,000 can be accepted, but the explanation around the reason they have occurred must be strong
- Multiple defaults and a history of ongoing credit issues will be of great concern. Your application may not be declined however it would need to be very strong in all other areas
- Telco defaults will be considered, unpaid and providing they are under $4000
- Motor finance defaults are acceptable, however, they must be older than six months and the arrears must be paid
- Home Loan arrears will not be considered favourably
- The lender will treat judgments in the same manner as defaults
Accurate Documents for Your Bad Credit Car Loan Applications
When applying for car loans, ensure the accuracy of your information. Inaccurate information will be identified and detract from the robustness of the application. Keep in mind if you have a blemished credit history, the lender begins with the premise that you may be a greater risk in the future. Hence to then have inaccurate information in your application, could lead to a declinal in an application which otherwise might have been approved. The types of information which are typically omitted or captured incorrectly could encompass the following:
- Failure to disclose bankruptcy or debts – incorrectly believing that because they are no longer showing on your credit file the lender will not be aware of them. Lenders use multiple sources of checks to look at applicant’s history and while a record of bankruptcy and the corresponding debts may have been removed from your credit file, there is a permanent record of them retained by the National Personal Insolvency Index (NPII). It is not uncommon for a lender to conduct a search of this nature where there is an applicant with any level of impairment
- Employment and residential history dates
- The number of dependants which you have
If you are aware you have credit impairment, ensure you have accessed a copy of your credit file prior to approaching the specialist and that you are aware of the level of your impairment. If you identify errors to correct them prior to making application as it could result in lower interest rates, fees, and reduced deposits.
Lenders will apply a rate for risk approach in determining the interest rates, the greater the credit impairment, the higher the interest rate. Interest rates can vary widely – 8% up to 26%.
The greater the severity of credit impairment will also have an impact on the amount of deposit you will be required to put in – 20% – 50%.
You can see the variation in rates and deposits can vary widely and so you should do your research and gain an understanding of how interest rates and deposits vary based on your level of impairment.
In assessing your decision to proceed with a bad credit car loan, know that it is a short-term solution while you work at rebuilding your positive credit file. We’ve been providing bad credit car loans to clients in Brisbane, QLD, NSW, Melbourne and throughout Australia.