Is car finance easy to get

Buying your first car is a really exciting experience. But it can be quite a challenge too, especially if you’re a young applicant applying for credit for the first time, or someone who is self-employed, has a bad credit history, or is only in casual employment.

While applying for a car loan can be tricky, it’s still possible to get your first car loan approved with these six tips.

Car loan pre-approval refers to your lender agreeing to loan you a sum of money to buy a car, subject to credit approval, and an invoice from the dealership. Going to a dealership with pre-approval means once you’ve picked out the car for you, you can be driving it in the next 48 hours.

Pre-approval can also be a great budgeting tool as you know the maximum amount the lender will let you borrow.

There are many expenses involved in owning a car apart from the maintenance and petrol. You will need to pay for things like stamp duty, car insurance and registration, which all add up. If you don’t budget well, this will be a burden. And your lender might reject your application. You can use our car loan calculator so you know how much your repayments will likely be and if you can actually afford it.

Even if you can afford to buy a new car, if you don't have all the required documents for a car loan you’ll likely be rejected. You should review the requirements so you know if you qualify for the car loan. Keep in mind that different lenders have different requirements.   

If you have a big car deposit, there’s a higher chance your car loan will be approved. It shows the lender that you’re financially responsible as a borrower. Also, a bigger deposit means lower monthly repayments because the size of your loan is reduced.

A bad credit history is a major red flag to many car loan providers in Australia. You should be able to improve your credit score by clearing any debts against your name, and paying off your loans on time. Your goal is to have as little debt as possible, so you can show your lender you can make the car loan repayments.

Certain car loans come with certain conditions attached. For example, if you’re applying for our Green Car Loan, the car you want to purchase will have to be a hybrid vehicle or be more fuel-efficient than average for a car of its size. If this isn’t the case, you are not likely to qualify for that particular loan. Another condition you might come across is a car not being older than a certain length of time.

This car loan tip is for people with no credit history. Opening a bank account is the first step into the world of credit, and lenders will examine your bank account balance and transaction history when deciding whether to give you a loan.

With the many car loan products out there, it pays to do your research so you know you’re getting the best possible deal that’s suitable to your needs and financial circumstances. You can compare loans by using a car loan calculator.

There's a few documents you’ll need for a car loan, these include:

• 100 points of ID: This can include a driver's license, a passport, a birth certificate, a Medicare card.

• Proof of income: You’ll be required to provide two or three of your most recent payslips, as well as proof of employment and details of your employer. If your self-employed two years of tax returns will be required.

• The vehicle details: You’ll need to provide the make, the model, the registration number, and the price of the vehicle, as well as whether it's new or pre-owned.

• Assets and liabilities: The lender will need to know if you own property, other vehicles, other loans, your expenses, and any other debts you might have.

To get started on your car buying journey, book an appointment with one of our friendly lending specialists to get pre-approval today.

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Like with other types of loans, your credit score may play a role in your ability to access a car loan. Lenders examine your credit rating when you apply for a car loan and a low credit score may impact the type of loan you can get, just like a good one can increase your chances.

But don't worry, the Finder app has your problems solved. Our feature lets you find out which personal loans you're likely to get approved for before even applying. Simply download the app, connect your credit score, and automatically see which you might be approved for.

Read on for more helpful information on how to improve your chances of getting a car loan and why your credit score is important.

How does your credit affect your ability to access car loans?

Your credit rating will directly affect your ability to access most loans and car loans are no different. It is normal for banks and lenders to check your credit file during the application process before they approve you for a car loan. If you have a bad credit file or any negative marks on your file, this will classify you as a risky borrower and will significantly limit your options for accessing credit. Lenders like to know they are lending money to someone who has the capacity to repay back their loan, so if there are any marks on your file that indicate you may not be able to do so, this will limit your access to a car loan.

Car loan options with bad credit

If you do have bad credit, there are still some car loan options available that can help you buy a car:

• Payday loans. Payday loans allow you to borrow a small amount of money over a short period of time. You can usually borrow between $100 and $2,000 and borrow the money for 16 days up to 1 year. Bad credit isn’t typically an issue with these types of loans. However, they do have a higher interest rate.
• Bad credit lenders. Some lenders deal specifically in lending money to those with bad credit to help them purchase a car. Bad credit lenders take the risk associated with your bad credit as they specialise in this area. However, rates and fees tend to be higher again.
• Wait until bad marks are removed from your credit rating. Your credit rating doesn’t remain on your record forever. If you can wait to purchase a car, consider waiting until the bad marks are removed from your credit rating so you have more options available to you.
• Credit repair. Credit repair can assist you in finding and eliminating any errors on your credit file and widening your car loan options.

About bad credit car loans

Improving your chances of being approved for a personal loan

If you do have a bad credit rating, there are some ways you can improve the chances of being approved for a car loan.

• Regularly check your credit file. Regularly checking your credit file for any errors or mistakes can eliminate or repair any bad marks from your file that shouldn’t be there and improve your chances for approval.
• Pay bills on time. Late payments of bills show up on your credit file. By ensuring you always pay your bills on time, you won’t have any more late payment marks on your credit rating and will improve your chances of being approved.
• Consolidate debt. Consolidating your debt into one debt can assist you in improving your credit rating. This will make it easier to repay your debt and you may also get a lower interest rate. Controlling your debt will ultimately allow you to improve your chances in being approved for a car loan.
• Control of your credit cards and spending. Controlling your credit cards and spending responsibly when using credit is one of the easiest ways to improve your chances of being approved. Make sure you don’t spend beyond your means, always make your repayments on time and stay in control of your credit.
• Don’t apply for loans too often. Applying for loans too often and getting rejected affects your credit rating. Applying less, or only applying for loans you know you will be approved for, will improve your credit rating and your chances of approval.

Types of car loans

• Secured car loan. A secured car loan requires you to use the vehicle you buy as security for your loan. If you fail to make your car loan repayments, the lender has the right to repossess your car. It can then sell the car to regain some of the funds it lost by lending you money.
• Unsecured car loan. An unsecured loan is when you don’t use your purchased vehicle as security. The lender can’t repossess your car and that makes you a riskier borrower. For this reason, the rates tend to be higher.
• Chattel mortgage. Chattel mortgages are used for those who are self-employed and who purchase a car for business use. They work like personal loans, but they are solely for business. The car you purchase is still used as security and you are still required to make regular monthly repayments. However, you get the choice of making a final repayment, called a balloon payment, that is larger than your regular repayments but helps keep payments down over the course of the loan.
• Dealer finance. Dealer finance is when you obtain finance to purchase your vehicle directly from the dealer rather than from a financial lender. Dealers can offer you competitive rates but there are often certain conditions and you may only be able to obtain finance for certain types of cars such as new cars.
• Unsecured personal loan. An unsecured personal loan is when a lender gives you finance and you don’t need to use an asset of yours as security. You can use your personal loan to purchase a car, though they aren’t designed specifically for the purchase of a car. These types of loans also tend to have higher interest rates because of the associated risk. You will be required to make regular monthly repayments.

If you're looking for a car loan and you have bad credit, you may want to consider the alternative options on this page. To help your application, you may also want to start repairing your credit so you look more favourable to lenders. The benefits of a good credit score include receiving the standard interest rate, rather than a higher one, and access to a higher loan amount, so it's worth looking at the ways you can fix your credit rating.

How do car loans work?

A car loan works just like any other loan except it is designed specially for those purchasing a car. The financial lender will lend you a certain amount of money to purchase your car and you agree to pay back the amount plus interest over a fixed term.

There are a few different options on how you want to structure your car loan. You can set out how much you need to borrow, your loan terms, length of your loan and how frequent your repayments will be. Your car loan will also come with an interest rate which will stipulate how much interest you will need to pay on your car loan.

You can also select either a secured loan, where the vehicle or another asset is used as security against the loan, or an unsecured loan, where no security is required but you will generally pay a higher rate. Different types of car loans may also have certain criteria that you will need to meet. For example, if you're buying a second-hand car, there could be an age limit for the vehicle.

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Shirley Liu is Finder's global program manager. She was previously the publisher for banking and investments and has also written comparisons for energy, money transfers, Uber Eats and many other topics. Shirley has a Master of Commerce and a Bachelor of Media, Journalism and Communications from the University of New South Wales. She is passionate about helping people find the best deal for their needs.

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