The Australian car buyer has a multitude of options when it comes to car finance. While some options may be off the table for borrowers with a very bad credit history, most are still available to car buyers with some credit impairment.
Secured Car Loan
A secured car loan is a personal loan secured by the car. What this means is that the lender will approve finance on the basis that if you fail to maintain set payments they can repossess the vehicle and sell it to recover funds lent.
While the market also offers unsecured car loans, which are simply a personal loan, these always require the borrower to have a clean credit history.
Sometimes instead of purchasing a car and taking out a loan, a person may prefer to only lease the vehicle. A finance lease will have a financier purchase the vehicle from a dealer for you and offer you to lease it for several years.
At the end of the lease term, you either, return the vehicle to the financier, and sign up for a new lease on a different vehicle, refinance the car, or pay a lump sum to purchase the vehicle.
Car leases are seen as an advantageous finance method for business owners who would like to maximize tax deductions on their vehicles.
As an employee of a company you may wish to explore the possibility of buying a new vehicle under a novated lease. With this type of finance, the employer takes on the lease on behalf of the employee, but the employee is responsible for the set lease repayments. As long as you are employed, these will come out of your pre-tax dollars, hence many car buyers on good salaries like the idea of a novated lease.
Ability to qualify for a novated lease will depend on the extent of your bad credit as well as the overall strength of your finance application.
Low Doc Car Loan
Low doc car loans, are loans that do not require the borrower to provide full financials such as tax returns, profit statements and the like. They are assessed in a similar manner to low doc home loans. These loans are well suited to self-employed borrowers who are earning an income but are not up to date with their taxes. However even with a low doc car loan, some level of income verification will still be required.
Qualifying for car finance
Bad credit will not preclude you form qualifying for car finance, however all lenders will consider a number of factors before approving your application. The more stability you can offer the more likely yo are to obtain finance approval.
Lenders are looking for evidence of borrower stability through:
- Stability of employment;
- Stability of place of residence;
- Ability to service and repay debts;
The following inquiries are unlikely to receive finance approval:
- Pensioners with no other sources of income
- Current Bankrupts;
- Borrowers in a debt agreement;
- Borrowers with huge unpaid defaults.
If your credit history is rather poor, the less you need to borrow as a proportion of the car value, the better.