Written by If you’ve been turned down for a car loan or are worried your low credit score will prevent you from getting one, a bad credit car loan can offer you a second chance at finance. These loans work in the same way as a standard car loan but are tailored to borrowers with a poor or limited credit history.
However, finding the right lender isn't always easy – and that’s where Savvy comes in. We’ve helped thousands of Australians with less-than-perfect credit secure finance through our network of lenders. Our experienced brokers will work with you one-on-one to guide you through your options and improve your chances of approval.
Why bad credit customers trust savvy
We’ve helped thousands of Australians with their finance needs since 2010, so we know what it takes to find the right loan.
All our car loan quotes are obligation-free, so you don't have to worry if you aren't ready to sign on the dotted line yet.
We're partnered and accredited with a wide variety of lenders across the country, including bad credit specialists.
We’ve helped thousands of Australians with their finance needs since 2010, so you can depend on us to find you a deal.
All our car loan quotes are obligation-free, so you don't have to worry if you aren't ready to sign on the dotted line yet.
We're partnered and accredited with a wide variety of lenders across the country, including bad credit specialists.
How much will my bad credit car loan cost?
Just like a standard car loan, bad credit car loans use the car you’re purchasing as collateral for the loan and are repaid in regular instalments. However, because of the increased risk associated with borrowers who’ve struggled with their credit, the interest and fees you’ll be required to pay will typically be higher than on a loan for someone with good credit. Additionally, the amount you can borrow and terms you can access may be more limited.
There’s a range of factors that can impact the cost of your bad credit car loan, such as the following:
Interest rates
As mentioned, rates will be higher on bad credit loans compared to other car loans. The following table shows how higher rates can make a big difference to the total amount of interest you’ll have to pay on your loan:
| Loan size | 15.00% p.a. | 16.00% p.a. | 17.00% p.a. | 18.00% p.a. |
|---|---|---|---|---|
|
$20,000 |
$8,548 |
$9,182 |
$9,824 |
$10,473 |
|
$30,000 |
$12,822 |
$13,773 |
$14,735 |
$15,709 |
|
$40,000 |
$17,096 |
$18,364 |
$19,647 |
$20,945 |
|
$50,000 |
$21,370 |
$22,955 |
$24,558 |
$26,181 |
Calculations are based on a five-year loan term and monthly instalments.
As you can see, on a $30,000 loan, the jump from 15.00% p.a. to 16.00% p.a. could cost you over $950.
Fees
There are several fees which can be charged on your loan. These include:
- Establishment fee: a one-off fee built into your repayments which can cost up to $600 to $900.
- Monthly fees: an ongoing charge included on each repayment which can range from $5 to $15 or more.
- Early repayment fees: these may be charged if you pay out your loan ahead of schedule, with the cost depending on the size of your loan and the time left to run on your term.
- Late payment fees: these may be charged if you submit a payment late or miss it altogether. They can be costly if they stack up.
Loan amount
Because interest is calculated based on your outstanding loan balance, greater sums will result in higher overall interest outlays. This can be seen when comparing the loans in the table above. For example, on a five-year loan repaid monthly at 15.00% p.a., the total interest rises from $8,548 on a $20,000 loan to $12,822 on a $30,000 loan.
Loan term
Longer loan terms will also result in greater interest charged overall. This is because your outstanding loan balance will decrease at a slower rate, meaning interest charges will stay higher for longer. This can be seen in the following table:
| Loan term | Repayments | Total interest | Total saving |
|---|---|---|---|
|
Five years |
$714 |
$12,822 |
N/A |
|
Four years |
$835 |
$10,077 |
$2,746 |
|
Three years |
$1,040 |
$7,439 |
$5,384 |
|
Two years |
$1,455 |
$4,911 |
$7,912 |
Calculations based on a $30,000 car loan repaid monthly with a 15.00% p.a. interest rate.
By shortening your term from five years to four for the loan example listed above, you’ll be required to pay $120 extra per month (or around $30 extra per week) in return for a saving of almost $2,750.
Extra repayments
If you’re able to make free additional repayments and not pay early termination fees, you could end up paying off your loan much sooner and for a lower cost. You can see this in the table below:
| Loan term | Extra payment | Total payments | Total interest | Total saving | Total loan term |
|---|---|---|---|---|---|
|
Five years |
$0 |
$714 |
$12,822 |
N/A |
Five years |
|
Five years |
$50 |
$764 |
$11,521 |
$1,301 |
Four years, seven months |
|
Five years |
$100 |
$814 |
$10,467 |
$2,355 |
Four years, two months |
Calculations based on a $30,000 car loan repaid monthly with a 15.00% p.a. interest rate.
By paying just $50 extra per month (or around $13 extra per week), you’d clear your debt five months sooner and save over $1,300 on a loan with the terms included above.
Deposits
Paying a deposit at the point of purchase reduces the size of your loan, and therefore the interest you’ll have to pay. You can see this in the table below:
| Deposit | Loan amount | Repayments | Total interest | Total saving |
|---|---|---|---|---|
|
$0 |
$30,000 |
$714 |
$12,822 |
N/A |
|
$1,500 |
$28,500 |
$679 |
$12,180 |
$642 |
|
$3,000 |
$27,000 |
$643 |
$11,540 |
$1,283 |
Calculations based on a car loan repaid monthly over five years with a 15.00% p.a. interest rate.
Even a 5% deposit on a $30,000 loan ($1,500) can save you hundreds of dollars over the course of your agreement. Speak with your Savvy consultant about the potential cost of your loan and how much you could save by optimising some of the above factors.
Top tips to increase your chances of bad credit car loan approval
How to apply for a bad credit car loan with Savvy
What are the eligibility criteria for bad credit car loans?
The qualification requirements for bad credit car finance will vary depending on the lender you go with. However, in general, you’ll need to meet the following criteria:
- You must be 18 years of age
- You must be an Australian citizen or permanent resident (options may exist for eligible visa holders)
- You must be earning a consistent income from stable sources (full-time, part-time or consistent casual or self-employed income, as well as eligible Centrelink payments) that meets minimum income requirements and is enough to support your repayments
- You mustn’t be bankrupt or under a Part IX debt agreement
Minimum income requirements can vary from around $20,000 to $26,000 per year (approximately $400 to $500 per week).
Can I refinance my car loan with bad credit?
You may be able to refinance your car loan deal if you have bad credit. There are several situations where you might look to refinance your loan, such as:
- Your credit score and finances have improved: if you’ve been paying off your car loan and other bills consistently throughout your term without issue, your credit score will rise. With that higher score, you could qualify for better interest rates and lower fees, potentially saving on your loan deal overall.
- You want to adjust the length of your loan: another key reason for refinancing is to update your loan’s term to suit your new situation. If it’s improved, this may be reducing your term and paying off your loan sooner. However, if you’re facing financial pressure, you can extend your term to reduce the cost of your payments (but increase its overall cost).
- You want to remove a co-borrower or guarantor: bad credit applicants can benefit from a co-borrower or guarantor being present on their car loan. If your situation has improved sufficiently down the track, refinancing your loan can remove them from the equation.
- Rates have fallen across the board: if you took out your car loan in a market with rates near their peak and they’ve subsequently fallen, you may wish to refinance to access the improved rate, even if your score isn’t significantly better.
However, whether you can do so will depend on your profile and lender.
First, as a borrower, you’ll need to show potential lenders that:
- You’ve consistently made repayments on time and in full
- You’ve decreased or eliminated other bad debts
- You’ve continued to have stability in your life, such as employment, income and residential history
If you've managed to achieve the above, then you could be considered by financiers to have “correctable credit”. This means that you’re capable of taking positive steps towards a better financial situation and are considered a lower risk than you were previously. Someone with “correctable credit” is much more likely to be approved for future loans than someone without it.
Second, and crucially, is applying with the right lender. Most financiers on the market won’t work with applicants with bad credit, even if they’ve taken steps to improve it. However, there are plenty of specialist lenders ready to provide finance to those who’ve struggled in the past. It’s imperative that you avoid unnecessary enquiries and rejections on your credit file, which is where a car finance broker can help.
WHAT OUR CUSTOMERS SAY ABOUT THEIR FINANCE EXPERIENCE
WHAT OUR CUSTOMERS SAY ABOUT THEIR FINANCE EXPERIENCE
Savvy is rated 4.9 for customer satisfaction by 6083 customers.
The Types of Car Loans You Can Choose From
FAQs Repeater Header
No, all lenders are required by law to conduct a credit check when you apply for a loan, regardless of your situation. This helps them to determine your level of risk, eligibility for a loan and appropriate interest rates. However, while there’s no way to prevent a lender from finding out your credit history, most will look beyond your credit score when deciding whether to approve you for a car loan.
Yes, if you're self employed and have an imperfect credit score, you can still land a vehicle finance both for you and your business. Lenders will generally look to ensure you’ve been working for yourself for at least one to two years at the time of your application. The only other major difference comes in terms of documentation requirements: you’ll have to submit your tax returns from the most recent financial year (or two most recent years). However, if you don’t have access to these, we also offer low doc finance options to self-employed individuals.
While you will generally not be approved for finance during bankruptcy, once your bankruptcy or Part 9 Debt Agreement has ended, you are free to apply for a car loan. However, it’s generally recommended to wait at least 12 months after discharge to rebuild your credit and improve your chances of approval. When assessing your application, your lenders will look for signs of financially stability, such as:
- A steady income
- Responsible spending habits
- No recent defaults or overdrafts
- A stable living situation
You may be able to, though this depends on the nature of the default, how long ago it was and how big it is. Minor defaults not related to credit products, like unpaid phone or utility bills, are less likely to be an obstacle, even though they can damage your credit score. However, recent unpaid defaults on a similar loan, such as a personal loan or another car loan, may stand in the way of approval. Regardless of the nature of your defaults, making the effort to repay any outstanding debts will help you when it comes to submitting your application.
If you have no credit history – for example, if you're a young driver you may find it challenging to get approved for a loan. The same goes if you're new resident to Australia seeking a car loan. Without a credit record, lenders may see you as a higher risk due to the lack of evidence of your financial habits. If you're able to put down a deposit or use a guarantor on your vehicle finance application it can help with approval.
Brands We Compare
Helpful guides on car loans
Get your car loan quote now
Explore a range of car finance options with Savvy. Get started with a free, no-obligation quote today!
