Many people in this situation submit poor quality applications – often the same poor quality application – over and over, hoping that one will eventually be approved. Unfortunately, this approach does not work. Finance companies tend to be quite rigid in their lending criteria – they’re looking for good reasons to approve your finance application. You need to demonstrate those reasons.
The following tips can assist you in your application for a bad credit car loan to financial lenders:
- Be honest in your application
- Assess your credit history before applying
- Save some money
- Work to improve your credit history
- Obtain stable employment
Are you in the market for a car loan? The table below displays a snapshot of car loans on Canstar’s database with links to providers’ websites, sorted by the advertised rate (lowest to highest), then provider name (alphabetically). Results based on a $20,000 loan over 5 years in NSW. Only one product per provider is shown.
*Read the Comparison Rate Warning.
It’s vital to be completely honest in every statement you make in your application. If you have a bad credit history, you can be sure that financiers will investigate your loan application closely. Kyle Rhys from BadCreditCarLoan.com.au says “Failing to disclose your previous credit history only for it to be found by the financier is an immediate red flag and your application for finance will be declined.”
Of course, honesty alone is not enough – you need also to be careful you make complete statements in your application. Don’t leave anything relevant out. Withholding information – even information that you believe might damage your application – is a much worse idea than full disclosure.
Your Credit History
Always access your credit file online before applying for a bad credit car loan (accessing your credit file is free and easy). It’s a great way to see exactly where you stand. If there’s an entry or entries you don’t understand, you are free to contact the companies listed on those entries for further information.
Also, the more legwork you do in the lead-up to your application, the less legwork is required on the part of the application assessor – the result being that your application will be dealt with faster. Being well prepared, up-front and complete in your application helps build confidence in the mind of the financier.
Your recent bank records are an essential part of a bad credit car loan application. These will be reviewed carefully, it’s essential to prove that you are able to live within your means, and also that you have the capacity to save regularly.
Even if it’s only a small amount each week, it’s excellent if you can demonstrate the capacity to save – which, when you think about it, demonstrates that you have some surplus income you can devote to loan repayments after covering your regular living expenses.
Likewise, if your account gets overdrawn, or if any direct debits are dishonoured as a result of insufficient funds, this reflects poorly on your ability to meet your commitments.
Loan & credit card history
If you have a credit card, or cards, or any other loan, your repayment history there will be carefully reviewed. You need to demonstrate a consistent history of making the payments. In the case of a credit card, it’s a good idea to demonstrate you’ve made more than the minimum monthly payment required. A solid recent history with credit will go a long way toward ensuring your current application is reviewed favourably.
A reliable, regular income is essential because you need this to service any future debt the financier may approve. If you have a solid employment history, this will reflect well on your application, generally, you’ll need to have been employed beyond the probationary period with your current employer to be considered stable.
If you’re employed on a casual basis, you’ll need to demonstrate a reasonably long relationship with that employer – say, more than 12 months. In general, having had many different employers in a short span of time doesn’t assist a bad credit car loan application, because finance companies are looking for you to demonstrate a solid, stable income source to service the debt.
John Cadogan is an Australian automotive journalist currently employed as editor in chief by CarLoans.com.au. He frequently presents news for some of Australia’s top companies such as Channel 7’s Today Tonight and 2UE radio. John can be contacted via Twitter or via the contact page here.