Is there a minimum credit score for a car loan in Australia?

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In promising news for potential buyers with a poor credit history, there is no fixed minimum credit score for a car loan in Australia.

However, since lenders look to your credit score to determine the risk of granting you a loan, a lower score could deter them from lending to you. Therefore, they might charge you a higher interest rate to reduce their risk or, in some cases, reject your application altogether. So if you’re considering financing your car, your credit score is an important number to understand and track.

What is a credit score?

A credit score or credit rating is a number representing your reputation as a borrower. It is calculated based on your financial history, which is listed in your credit file.

Credit scores are used by lenders to gauge the likelihood of you repaying 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, which makes you eligible for a wider variety of financing options at more competitive rates.

How does my credit rating affect my interest rate?

Generally, borrowers with higher credit ratings tend to attract lower interest rates. This is because lenders feel more confident in your ability to repay debt if you have a high credit rating.

On the other hand, a low credit score may not prevent you from qualifying for a car loan, but it may limit your financing options. You can also expect a larger down payment and higher interest rates than borrowers with high credit scores. For example, applying for a car loan with a credit score of 700 may qualify you for a low interest rate. However, if you apply with a credit score of 560 or less for a car loan, you can expect to pay interest at a higher rate than the market average.

It’s 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 auto credit?

Australia’s two major credit providers, Experian and Equifax, divide their credit scores into five bands, 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 both an approval and a lower rate offer.

What happens if I apply for a car loan with bad credit?

If you have a low credit score, you may find it difficult to get a loan from a traditional lender. Alternatively, you may be offered a loan with a high interest rate. In such a situation, you may consider a bad credit car loan from a specialty lender who is more likely to approve your request for financing, but these loans often come with higher rates.

Remember that not making your repayments on time can further lower your credit score. Therefore, unless you need a car urgently, it may be worth waiting and repairing your credit before applying for new credit. It’s also helpful to use a car repayment calculator to estimate your weekly, biweekly, or monthly repayments to realistically assess whether or not you can afford a car loan.

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