Millions of Australians use car finance to get on the road, but if you’ve had credit problems in the past you might be unsure if you qualify. While you can’t avoid credit checks, having bad credit won’t necessarily prevent you from getting a car loan. Join us to find out the options available to you and ways to improve your credit score to help you increase your chances of approval.

Can I get a car loan with no credit check?

No. No credit check car loans are a myth and it is not possible to get finance without a credit check in Australia. Reputable lenders will always check your credit history when you apply for a loan. This is a requirement under the National Consumer Credit Protection Act, which stipulates that all credit providers must check and confirm a borrower’s financial status and needs in order to fulfil their responsible lending obligations.  

There are several reasons for performing credit checks, including:

• Assessing risk: a credit check provides insight into the borrower’s credit history and financial behaviour, which can help a lender determine the risk of a borrower defaulting on a loan.
• Determining interest rates: credit scores play a major role in determining the interest rate offered on a loan. Borrowers with higher credit scores are typically offered lower interest rates, as they are considered less risky.
• Reducing fraud: a credit check can help to prevent fraud by confirming that the applicant is who they claim to be.

However, while lenders will always perform a credit check, having a poor credit history doesn't mean you can't get a car loan. Even with bad credit there are options available to you.

What are my car loan options if I have bad credit?

While a poor credit score can affect your chances of getting approved, it is still possible to take out a car loan. Bad credit car loans are offered specifically to borrowers who’ve experienced issues in the past. That means they’re the best place to start looking when you’re worried about a credit check.

To qualify for a car loan, you will need to meet certain criteria. All applicants must be at least 18 years old and an Australian citizen, permanent resident or on an acceptable temporary visa. Lenders will also look at other elements like your employment status and what you earn. It’s a massive bonus if you’re in stable employment because that’s a good signal to lenders that you’re a decent prospect. Generally, loan providers will check how long you’ve been in your current job, what you do for a living and how much you earn. You don’t have to be a high earner – minimum income requirements can start from as low as $20,000 per year, depending on the lender, and you may be able to qualify if you receive Centrelink payments.

Furthermore, as car loans are typically secured financial products where your vehicle acts as collateral, you may find you are able to borrow a larger amount at a lower rate compared to an unsecured personal loan.

If you are still struggling to get approved, you may want to consider applying with a guarantor or opting for a cheaper car that would require you to borrow less.

How do I repay a bad credit car loan?

You can typically repay a car loan over anywhere between one and seven years, offering a degree of flexibility. This allows you to choose a repayment schedule that best suits your financial situation and circumstances. The most important thing is to stay on top of your loan repayments. You should:

• Set a budget: creating a budget to manage your finances and have enough money each month to cover your loan payments can help you avoid any financial surprises that could impact your ability to pay.
• Make regular payments: prioritise making payments on time as agreed in your loan contract. Setting up automatic payments from your bank account can help ensure you never miss a payment.
• Monitor your loan balance: regularly checking your loan statements can help you keep track of your remaining balance and ensure your payments are being applied correctly.
• Communicate with your lender: if you fall into financial difficulty, you should contact your lender immediately. They may be able to offer solutions such as adjusting your payment schedule or providing temporary relief options.

To get a realistic idea of the repayment amounts involved, you can use our car loan repayment calculator. This lets you adjust the interest rate, deposit amount, loan term and repayment frequency to calculate terms affordable for you.

How can I improve my credit score?

A better credit score can improve your chances of loan approval and potentially give you access to more lenders and lower interest rates. In Australia, a good credit score is anything above 500 (illion), 625 (Experian) and 661 (Equifax). Here are some steps to take to improve your credit rating:

Pay your bills on time

A history of on-time payments demonstrates your reliability in managing debt. This includes credit cards, utilities, rent, phone bills and anything else reflected on your credit report. Setting up reminders or automatic payments can help ensure you don’t miss any due dates.

Avoid defaults and debt

According to the Office of the Australian Information Commissioner (OAIC), a default is recorded when you owe more than $150 which is over 60 days late. Defaults appear on credit checks for five years, but you’re entitled to have entries updated to reflect when you’ve paid them off – even if the payment was late.

Court judgements and Part IX debt agreements also stay for five years. Bankruptcies usually last for three years before you're discharged. Different credit reporting agencies treat removing that from your credit file in different ways. Some will erase it two years after your bankruptcy process ends, while others will count five years from the day you filed for bankruptcy.

Don't apply too many times

Avoid applying for too many loans in a short period. Every time you make a credit application, an impression is left on your report and is visible to lenders when they conduct a credit check. Making a simple enquiry or quote request, however, is known as a ‘soft check’ and won’t affect your credit file. You can then use these quotes to compare different lenders and their available offers.

Access your free report

You can see your credit report for free once every three months, as well as in cases where you have been refused credit within the past 90 days or your personal information has been corrected. It’s worth doing a ‘self-credit check’ regularly to keep track of your score and to check all your information is up to date and correct. If it’s not, you can ask lenders to update or remove entries.