What is the lowest credit score for a car loan?
If you’re in the market for a new set of wheels, you’ll most likely need finance. After all, cars don’t come cheap, whether it’s the latest top-of-the-range model or a second-hand vehicle.
Whenever you apply for a loan – whether it’s a car loan, home loan or personal loan – lenders want to know how likely it is you’ll repay the money. So, as part of the assessment process, lenders generally look at a borrower’s credit report.
That begs the question: what is the lowest credit score for a car loan?
Well, in good news for those of us with less-than-perfect credit scores, there’s no minimum score needed to be approved for a car loan in Australia. So it’s theoretically possible to get approved for a car loan with any credit score.
That said, each lender has its own requirements. So when you apply for a car loan, you have to meet that lender's specific terms and conditions for approval.
Australia’s biggest banks have strict lending criteria, so car loans from CommBank, ANZ, Westpac and NAB can sometimes be hard to get. Unfortunately, the lower your credit score, the more likely your application will be declined.
That’s not to say you should throw in the towel if you get rejected by a big four bank (or any lender for that matter). Australia has many car finance providers, each with its own eligibility criteria, so just because you might not be a suitable customer for one institution doesn’t mean you won’t be for another. You just need to figure out which is the right lender for somebody with your borrowing profile.
But that’s easier said than done if you don’t know each lender’s criteria.
That’s where Naked Loans comes in. We have relationships with dozens of lenders and understand their lending rules. That’s why we’re experts in getting car loans approved for our clients, even when they’ve been declined before.
A word of warning if you’re thinking of taking a scattergun approach and sending car loan applications to numerous lenders. Submitting lots of applications can harm your credit score – and getting declined can do even more damage. That’s another reason why it makes sense to partner with an expert car loan broker like Naked Loans, especially if you have a low credit score.
How does my credit score affect my car loan?
Many lenders offer different interest rates and loan terms to different customers, based on their creditworthiness as a borrower.
This is known as risk-based pricing.
Generally, the better your credit score, the lower the interest rate you can expect to pay. On the other hand, a lower score often brings with it a higher car loan rate.
For example, take bad credit car loans. Bad credit car loans typically come with higher car loan rates than standard low interest car loans (as you’ll see if you do a car loan comparison). The exact rate you get charged will depend on your loan term, credit history, income and expenses.
Higher interest rates will make your car loan more expensive in the long run, as a car loan calculator will quickly show you.
However, at Naked Loans, we have relationships with over 30 lenders. This gives us access to the lowest interest rates available in the market today. So we can find you the best deal possible for your personal circumstances, even if you do have bad credit.
Our car loan application process is free and won’t affect your credit score.
How can I check my credit score?
Your credit score doesn’t just affect your ability to get a car loan. It also plays a big part in the car loan rate and terms you get offered.
That’s why it’s always a good idea to check your credit score before applying for car finance. But how do you do that?
In Australia, there are three credit reporting agencies: Equifax, Experian and Illion. These agencies collect personal and financial information about you, such as your:
● Credit applications
● Repayment history
● Payment defaults
● Serious credit infringements
● Personal insolvency or bankruptcy details
● Personal details
This information is put into a credit report and used to calculate your credit score.
Each credit reporting agency takes a different approach to collecting information and uses its own algorithm to calculate credit scores. So your credit report and credit score may vary from agency to agency.
In Australia, you have a legal right to get a free copy of your credit report every three months from each credit reporting agency.
What's a good credit score for a car loan?
Depending on the credit reporting agency, your score will be between 0 and either 1,000 or 1,200.
So what do those numbers mean? Well, according to CreditSmart, if your credit report shows scores out of 1,200:
● 853 and above is excellent
● 661 to 852 is good
If your credit report shows scores out of 1,000:
● 690 and above is excellent
● 540 to 689 is good
How can I improve my credit score?
What should you do if you’re looking for the best car loan in Australia … and you request a copy of your credit report from one of the agencies … and your credit score turns out to be on the low side?
Well, thankfully, your credit score isn’t set in stone; it goes up and down depending on your financial behaviour. So if you don’t need to buy a car right away, there are steps you can take to improve your score in the months leading up to your car loan application.
This won’t just increase your chances of approval. It can also help you secure a lower interest rate and more favourable terms.
Here are five ways you can boost your credit score:
Pay your bills on time – Your payment history is one of the biggest factors that go into calculating your credit score. That’s why it’s important you do your best to pay on time, every time. Setting up direct debits is a great way to make sure you’ll never forget a payment again.
Pay off any outstanding debts – If you miss a payment and the bill is for $150 or more and at least 60 days overdue, it will be listed as a default on your credit report. Defaults stay on your report for five years and negatively impact your credit score.
Limit new credit applications – Every time you make a new credit application it shows up on your report as a ‘hard enquiry’. Too many hard enquiries in too short a time can damage your credit score. As such, if you're rejected for credit, don’t apply to multiple lenders in quick succession – as this can make your situation worse. Rather, work with an expert finance broker like Naked Loans.
Lower the limit on your credit cards – Consider reducing your limit or getting rid of credit cards you rarely use. This is because your credit report only takes into account your total credit limit, not your actual balances.
Check your credit report – Incorrect listings could be unfairly dragging down your credit score. If you find any, contact the credit reporting agency or work with a credit repair agency to get it corrected.
How long does it take to fix your credit score?
The time it takes to recover from a bad credit score depends on the reason for the low score in the first place.
For example, imagine your low score is due to mistakes on your credit file. In that case, if you dispute the listing and get it removed, you should see a relatively quick improvement.
Alternatively, imagine you made a few late payments on a credit card that are now bringing your credit score down. Late payments stay on your report for two years. While you can’t undo past mistakes, their impact does diminish over time – especially if you stay on top of your debt and pay your bills on time going forward.
How can I get a car loan with bad credit?
Got bad credit but need a car fast? Don’t panic. A bad credit history won’t necessarily stop you from getting approved for a car loan. Bad credit car loan specialist lenders do exist, so you can still get car finance.
What’s more, work with Naked Loans and you can still get a competitive interest rate – even when you do have bad credit. That’s because we specialise in second-chance finance and compare over 30 lenders to find you the best deal possible.
Naked Loans also has arrangements with lenders that are willing, under certain circumstances, to ignore borrowers' credit scores and still offer them competitive interest rates. For example, we had a client who had a credit score of just 190, putting her in the bottom tier – yet we were able to get her a $30,000 loan priced at just 4.95% because she had a long tenure in her job and also owned her own home for a long time.
Our service is completely free, even though we work on your behalf. That’s because we are paid a commission by the lender whenever we arrange a car loan.
The online application takes only ten minutes to complete and won't affect your credit score. Once we receive your application, we’ll get back to you with your finance options within 48 hours.
Our loans are up to $100,000 and come with a competitive interest rate, no deposit and flexible terms to suit your specific situation. Most of our bad credit car loans are for two to seven years.
Looking for the best car loan in Australia? Naked Loans can help – even if you do have low credit. Apply online now or contact us by calling 1800 438 625, emailing info@nakedloans.com.au or filling in this online form.