How to Get a Car Loan with Bad Credit in Australia
Having a less-than-perfect credit history does not automatically disqualify you from getting a car loan. While mainstream lenders tend to decline applications from borrowers with low credit scores, Australia has a robust specialist lending market that caters specifically to people in this situation. This guide explains what bad credit means in practice, how lenders assess subprime borrowers and what you can do to maximise your chances of approval at the best possible rate.
- A credit score below 500 (Equifax) is generally considered "bad credit" in Australia
- Specialist lenders exist specifically for borrowers with impaired credit histories
- Expect interest rates of 10-20% p.a. compared to 5-8% for prime borrowers
- A larger deposit (20%+) significantly improves your approval chances
- Using a broker avoids multiple credit enquiries that further damage your score
What Counts as Bad Credit?
In Australia, the three major credit reporting bureaus — Equifax, Experian and illion — each use slightly different scoring models, but the general ranges are similar. On the Equifax scale (0-1,200):
| Score Range | Rating | Lender Perception |
|---|---|---|
| 833-1,200 | Excellent | Best rates available; virtually guaranteed approval |
| 726-832 | Very Good | Competitive rates; easy approval |
| 622-725 | Good | Standard rates; most lenders approve |
| 510-621 | Average | Limited options; some mainstream lenders decline |
| 0-509 | Below Average | Specialist lenders only; higher rates apply |
Beyond the raw score, lenders also look at your credit file for specific negative listings: defaults (unpaid debts over $150 that are more than 60 days overdue), court judgments, Part IX debt agreements and bankruptcies. Even a single small default can trigger a decline from a mainstream lender.
How Specialist Lenders Work
Specialist or "non-conforming" lenders fill the gap that mainstream banks leave. They are typically non-bank financial institutions that accept higher risk in exchange for higher interest rates. These lenders:
- Consider applications from borrowers with defaults, judgments and even prior bankruptcies (provided they are discharged)
- Place greater emphasis on your current financial situation rather than past events
- May require a larger deposit (typically 10-30% of the vehicle value) to offset the higher risk
- Often require the vehicle to be newer (usually less than 10 years old) to ensure adequate security
- Charge interest rates between 10% and 20% p.a., depending on the severity of credit impairment
These lenders are fully licensed and regulated under the National Consumer Credit Protection Act, so your consumer rights are the same as with a mainstream bank. The higher rates reflect the statistical risk of lending to borrowers with impaired credit, not exploitative pricing.
Improving Your Chances of Approval
- Check your credit file first: Request a free copy from Equifax, Experian or illion. Look for errors — incorrect defaults, wrong addresses or debts that have been paid but still show as outstanding. Dispute any inaccuracies before applying.
- Save a deposit: A deposit of 20% or more dramatically improves your chances. It reduces the lender's risk and demonstrates that you can manage money responsibly.
- Stabilise your employment: Lenders favour applicants who have been in the same job for at least six months, ideally 12 months. If you have recently changed jobs, wait until you pass probation before applying.
- Reduce existing debts: Pay down credit cards and personal loans where possible. Lower existing commitments mean more capacity for a car loan.
- Avoid multiple applications: Each hard enquiry reduces your score. Use a finance broker who will submit one targeted application to the most suitable lender.
- Choose a reasonable vehicle: Applying for a $15,000 reliable used car is far more likely to be approved than a $50,000 luxury vehicle. Lenders assess whether the loan amount is realistic relative to your income.
- Provide comprehensive documentation: Bank statements showing consistent income, stable rental payments and no gambling transactions strengthen your application.
What to Expect on Rates
Bad credit car loan rates vary enormously depending on the severity of credit impairment, your income stability and the deposit you can provide. Here is a general guide:
| Credit Situation | Typical Rate Range | Deposit Usually Needed |
|---|---|---|
| Minor blemishes (paid defaults) | 8-12% p.a. | 10-20% |
| Active defaults under $5,000 | 12-16% p.a. | 20%+ |
| Active defaults over $5,000 | 14-20% p.a. | 20-30% |
| Discharged bankruptcy | 12-18% p.a. | 20-30% |
The Refinancing Strategy
One of the smartest approaches for bad credit borrowers is to treat the initial loan as a stepping stone. Take the specialist loan at the higher rate, make every repayment on time for 12 to 24 months, and then refinance to a lower rate once your credit score has improved. Consistent on-time repayments are one of the fastest ways to rebuild your credit score.
Before signing, check the loan contract for early repayment fees or exit penalties. Some specialist lenders charge significant break fees, which could negate the benefit of refinancing. Choose a lender with reasonable or no early exit fees to keep this option open.
- Predatory lenders charging excessive fees — always check the comparison rate
- Secured loans against essential assets like your home for a car purchase
- Excessively long loan terms (7+ years) that keep you in negative equity
- Dealers who offer "guaranteed approval" but embed hidden fees
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are based on a secured loan of $30,000 over 5 years for vehicle finance and $50,000 over 5 years for equipment finance, as required under the National Credit Code.