Life happens. Medical emergencies, job losses, relationship breakdowns, or simply being young and making mistakes can all lead to credit issues. The good news is that specialist lenders in Australia understand this, and there are genuine pathways to getting a car loan even with a less-than-perfect credit history.
You're Not Alone - And There Are Options
Thousands of Australians with credit issues successfully get car loans every year. While the process may be different from prime lending, and rates will be higher, the right approach can significantly improve your chances of approval.
What Constitutes Bad Credit in Australia?
In Australia, credit scores typically range from 0 to 1,200 (Equifax) or 0 to 1,000 (Experian and Illion). While different lenders have varying criteria, scores below approximately 500 are generally considered "bad credit" territory.
| Score Range (Equifax) | Rating | Lending Impact |
|---|---|---|
| 0 - 459 | Below Average | Specialist lenders only; expect higher rates |
| 460 - 660 | Average | Some mainstream options; rates above average |
| 661+ | Good to Excellent | Most lenders available; competitive rates |
However, your credit score alone doesn't tell the whole story. Lenders also look at the specifics of your credit file - the type, age, and size of any defaults or adverse events matter significantly.
Common Causes of Bad Credit
- Defaults - Unpaid debts over $150 that are 60+ days overdue
- Late payments - Consistent pattern of paying bills after due date
- Bankruptcy or Part IX agreement - Formal insolvency arrangements
- Multiple credit enquiries - Too many applications in a short period
- Court judgments - Unpaid debts resulting in legal action
Financial vs Non-Financial Defaults
Not all defaults are viewed equally by lenders. Understanding the distinction between financial and non-financial defaults is crucial, as this significantly affects your borrowing options.
Financial Defaults (More Serious)
These relate to credit products and are viewed more negatively by lenders:
- Car loan defaults
- Personal loan defaults
- Credit card defaults
- Mortgage arrears/defaults
- Buy Now Pay Later (BNPL) defaults
Non-Financial Defaults (Less Serious)
These relate to services and are viewed less harshly by many lenders:
- Utility bills (electricity, gas, water)
- Phone and internet bills
- Medical bills
- Gym memberships
- Toll defaults
How Long Do Defaults Stay on Your Credit File?
- Defaults remain for 5 years from the date of listing, whether paid or unpaid
- Credit enquiries remain for 5 years but mainly impact your score for the first 12 months
- Larger defaults are viewed more seriously than smaller ones - a $500 default is different from a $15,000 default
BNPL Warning
Buy Now Pay Later services like Afterpay and Zip are increasingly being reported to credit bureaus. Missed BNPL payments are now viewed negatively by many lenders, similar to other financial defaults.
What Lenders Look For in Bad Credit Applications
Specialist lenders understand that credit issues happen. What they want to see is evidence that your situation has stabilised and you can afford the repayments. Here are the key factors they assess:
Income Stability
Lenders want to see consistent employment and income. Generally, they prefer:
- At least 3-6 months in current job (ideally 12+ months)
- Regular income pattern (same or similar amounts each pay)
- Permanent or long-term casual/contract employment
Existing Debt Levels
Your total debt obligations compared to income matters. Lenders assess:
- Current loan and credit card repayments
- BNPL commitments (even if paid on time)
- Whether existing debts are being paid on time
Payment History Since Credit Issues
Evidence that you've turned things around is crucial:
- Clean conduct on bank accounts (no dishonours)
- Any existing loans paid on time since the defaults
- Settled or paying off old defaults shows responsibility
Deposit Amount
A larger deposit significantly improves your chances:
- Minimum $2,000 - $5,000 deposit typically required
- Higher deposit = lower risk for lender = better approval chances
- Demonstrates ability to save and financial commitment
Bankruptcy & Part IX Debt Agreements
Bankruptcy and Part IX debt agreements are formal insolvency arrangements that have significant implications for your credit. However, specialist lenders can still help once you meet certain criteria.
Bankruptcy
Bankruptcy is a legal process that releases you from most debts but comes with significant restrictions. For car finance:
- Must be discharged - You cannot get credit while undischarged (typically 3 years from filing)
- 12+ months post-discharge - Most lenders require at least 12 months since discharge; some require 2+ years
- Stays on file 5-7 years - Bankruptcy remains on your credit file for 5 years from discharge date (or 7 years from start date if longer)
Part IX Debt Agreements
A Part IX debt agreement is an alternative to bankruptcy where you negotiate to pay a portion of your debts over time. For car finance:
- Must be completed - You cannot get credit while in an active Part IX
- Similar requirements to bankruptcy - Most lenders require 12+ months since completion; some require 2+ years
- File notation - Remains on credit file for 5 years from start date or 2 years from completion, whichever is longer
Important: If you're currently in bankruptcy or a Part IX agreement, focus on completing it first. We can help you plan for car finance once you're discharged or your agreement is completed.
What Can Get You Declined
Even specialist bad credit lenders have limits. Understanding what can lead to a decline helps you avoid wasting applications (which add enquiries to your file) or know what to work on first.
Common Decline Reasons
- Large unpaid financial defaults
Significant unpaid car loan, personal loan, or credit card defaults signal high risk. Settling these before applying greatly improves chances.
- Current or recent bankruptcy
If undischarged or discharged less than 12 months ago, almost no lender will approve.
- Bad bank account conduct
Recent dishonours, overdrawn accounts, or returned direct debits in the last 3-6 months are red flags.
- Gambling transactions on bank statements
Regular gambling activity is an automatic decline for many lenders. This includes online betting, casino transactions, and pokies.
- Frequent job or address changes
Instability suggests higher risk. Multiple jobs or addresses in the past 12 months can be problematic.
- Insufficient income
Even with perfect credit, if your income doesn't support the repayments after expenses, you won't be approved.
Avoid Multiple Applications
Each application creates a credit enquiry. Multiple enquiries in a short period look desperate and reduce your score further. Work with a broker who can assess your situation and submit to the right lender first time.
Tips to Improve Your Approval Chances
If you're not in a rush, taking 3-6 months to prepare can significantly improve your chances of approval and may even get you a better interest rate.
Settle Outstanding Defaults If Possible
While paid defaults still show on your file for 5 years, they look much better than unpaid ones. Contact creditors to negotiate settlements - many will accept less than the full amount. Get written confirmation of any settlement.
Clean Up Your Bank Statements
Lenders will review your last 3-6 months of bank statements closely. Before applying:
- Avoid overdrawing your account or having dishonours
- Stop all gambling transactions - even small ones
- Pay down BNPL balances and avoid new ones
- Show consistent income deposits
Save a Deposit of $2,000 - $5,000+
A cash deposit is often required for bad credit car loans and significantly helps approval chances. The larger your deposit, the lower the lender's risk - which can mean approval where you'd otherwise be declined.
Maintain Employment Stability
If possible, stay in your current job for at least 3-6 months before applying. Lenders are more comfortable when they see stable employment and consistent income.
Consider a Guarantor
If you have a family member with good credit willing to guarantee your loan, this can significantly improve your chances. The guarantor takes on responsibility if you default, so this is a serious commitment.
Be Realistic About the Car
A smaller loan amount is easier to approve. Consider a reliable used car rather than a new one. Most bad credit lenders have maximum age and kilometre requirements for vehicles.
Secured vs Unsecured Bad Credit Loans
Understanding the difference between secured and unsecured loans is important when you have bad credit:
The Reality
Almost all bad credit car loans are secured. This means the car itself is used as collateral for the loan. If you default, the lender can repossess the vehicle.
This isn't necessarily bad news - secured loans mean lower interest rates than unsecured options would be (if they were even available). The car security reduces the lender's risk, making them more willing to lend to people with credit issues.
Note: Unsecured personal loans for people with bad credit do exist but typically come with much higher interest rates (sometimes 20%+) and are rarely the best option for car purchases. A secured car loan is almost always the better choice.
Interest Rates to Expect
Let's be honest: bad credit car loans come with higher interest rates than prime loans. This reflects the higher risk lenders take. Here's what to expect:
| Credit Situation | Typical Rate Range | Notes |
|---|---|---|
| Minor credit issues | 9% - 12% | Small/older paid defaults, minor late payments |
| Moderate bad credit | 12% - 15% | Multiple defaults, recent paid defaults |
| Serious credit issues | 15% - 20%+ | Discharged bankruptcy, large unpaid defaults |
Factors That Lower Your Rate
- Larger deposit
- Defaults are older and/or paid
- Strong income relative to loan amount
- Newer vehicle (less than 5-7 years old)
- Clean bank statements for 6+ months
Factors That Raise Your Rate
- No deposit or minimal deposit
- Recent or unpaid defaults
- Discharged bankruptcy within 2 years
- Older or high-kilometre vehicle
- Casual employment or short job tenure
A Note on "Predatory" Lending
Be cautious of lenders offering rates above 25% or loans that seem "too easy" to get. According to ASIC, some car finance providers have been found to charge excessive fees and interest to vulnerable borrowers. Always check the comparison rate and understand the total cost of the loan.
Specialist Bad Credit Lenders in Australia
Major banks (CBA, NAB, Westpac, ANZ) typically don't lend to people with bad credit. However, there are approximately a dozen specialist lenders in Australia who specifically cater to this market.
What Specialist Lenders Offer
- Experience with credit issues - They understand that life happens and assess applications individually
- Manual assessment - Not just automated credit scoring; real people review your circumstances
- Flexible criteria - Different lenders have different appetites for risk and specialisations
- Path to better credit - Successfully repaying a bad credit loan helps rebuild your credit file
Why Use a Broker?
Each specialist lender has different criteria, and applying to the wrong one wastes an enquiry on your credit file. A broker who works with bad credit clients knows which lenders suit your specific situation and can maximise your approval chances with a single application.
Official Resources
Key Takeaways
- Bad credit doesn't mean no options - specialist lenders exist specifically for this market
- Financial defaults are more serious than non-financial ones
- A deposit of $2,000 - $5,000+ significantly helps approval chances
- Clean bank statements for 3-6 months before applying is crucial
- Expect interest rates of 9-15%+ depending on your situation