In the promising news for potential buyers with poor credit histories, there is no fixed minimum credit score for a car loan in Australia.
However, because lenders refer to your credit score to determine the risk of granting you a loan, a lower score may make them wary of lending to you. As a result, they might charge you a higher interest rate to reduce their risk, or in some cases, reject your application altogether. So, if you are thinking of financing your car, your credit score is an important number to understand and follow.
What is a credit score?
A credit score or credit score is a number representing your reputation as a borrower. It is calculated based on your financial history, which is listed on your credit report.
Credit scores are used by lenders to gauge the likelihood that you will pay off a loan in the future. Based on your credit score, a lender will decide if and how much money they are willing to lend you, and on what terms. Generally, the higher your credit score, the more creditworthy you are considered by lenders, making you eligible for a wider variety of financing options at more competitive rates.
How Does My Credit Score Affect My Interest Rate?
Generally, borrowers with higher credit scores tend to attract lower interest rates. This is because lenders have more confidence in your ability to repay debt if you have a high credit score.
On the other hand, a low credit score may not prevent you from being eligible for a car loan, but it can limit your financing options. You can also expect a larger down payment and higher interest rates than borrowers with a high credit rating. For example, applying with a credit score of 700 for a car loan may qualify for a low interest rate. However, if you apply for a car loan with a credit score of 560 or less, you can expect to pay interest at a higher rate than the market average.
It is generally a good idea to check your credit score with one of the four credit bureaus before applying for any type of credit. You can also use our Credit Score Center to get your Experian and Equifax credit scores delivered to your inbox.
What is a good credit score for a car loan?
Australia’s two major credit providers, Experian and Equifax, divide their credit ratings into five categories, ranging from “below average” to “fair” to “good”, “very good” and “excellent”.
As suggested by the Levels, an Experian credit score between 625 and 699 and an Equifax credit score between 622 and 725 are considered good. Anything above is even better. In other words, if you apply for a car loan with a credit score above 620, you have a better chance of getting approved and offered at a lower rate.
What if i apply for auto credit with bad credit?
If your credit rating is low, you may have difficulty getting a loan from a traditional lender. Alternatively, you may be offered a loan with a high interest rate. In such a situation, you may want to consider a bad credit car loan from a specialist lender who is more likely to approve your financing request, but these loans often come with higher rates.
Remember that not making your payments on time can further lower your credit score. Therefore, unless you need a car urgently, it may be worthwhile to wait and work on repairing your credit before you apply for new credit. It’s also worth using a car repayment calculator to estimate your weekly, bi-weekly, or monthly repayments to realistically assess whether you can afford a car loan or not.