If you have bad credit, you might think getting a loan is impossible. The good news is that it is not. There are lenders who specialise in helping people with credit challenges.
Yes, you may pay more in interest. But getting approved and making consistent repayments is also a path to rebuilding your credit for better options in the future.
What Counts as Bad Credit?
Bad credit generally means you have negative items on your credit report that make mainstream lenders hesitant to approve you.
- Defaults (unpaid debts marked as defaulted)
- Judgments or court actions
- Bankruptcy (current or discharged)
- Part IX debt agreement
- Multiple missed payments
- Too many credit applications in a short period
Specialist Lenders Explained
Specialist lenders, sometimes called second-tier or non-conforming lenders, have different criteria to banks. They look at your current situation, not just your past.
They typically charge higher interest rates to offset the higher risk, but they can approve applications that banks would decline.
What They Look For
Specialist lenders focus on your current income, employment stability, and ability to service the loan now - not just your credit history.
Deposit Helps
A deposit reduces the lender risk and can improve your chances. Even 10-20% can make a difference.
Improving Your Application
Even with bad credit, you can strengthen your application.
- Show stable employment - at least 3-6 months in current role
- Demonstrate consistent income with bank statements
- Save a deposit if possible
- Clear any small outstanding debts
- Be upfront about your credit history
- Explain the circumstances that led to credit issues
Secured vs Unsecured
If you have bad credit, a secured loan (where the car acts as security) is usually easier to get approved than an unsecured loan.
The lender has less risk because they can repossess the car if you default. This can mean better rates and higher approval chances.
Building Your Credit Back
Getting a loan with bad credit is not just about the car - it is an opportunity to rebuild your credit. Making consistent, on-time repayments will improve your credit score over time.
After 12-24 months of good payment history, you may be able to refinance to a better rate. Your broker can help you with this when the time is right.
Watch Out For
While specialist lenders provide valuable options, be aware of some things.
- Higher interest rates - compare the total cost
- Stricter conditions if you miss payments
- Potential fees for early repayment
- Some lenders have minimum loan amounts
- Avoid lenders who do not check if you can afford it
Key Takeaways
- Bad credit does not mean no options
- Specialist lenders look at your current situation
- A deposit improves your chances significantly
- Consistent repayments rebuild your credit
- After 12-24 months you may be able to refinance