Tips to Get a Car Loan When You Have Imperfect Credit
Apart from homes, cars are one of the biggest purchases you’ll make over your lifetime. If you have bad or imperfect credit, it does become challenging to find a suitable car loan that won’t break the bank. If you fear you have imperfect credit – a “quirk” of the system we all have to bear with unfortunately – here are some tips to give you the best chance of approval.
Check your credit first
You may fear that you have bad credit – but how bad is it? In Australia, credit scores lie along a scale of 1 to 1200 (or 1000.) Anything below the half-way mark is usually marked as “below average” – though it doesn’t stop you from checking your credit score and history every three months for free without penalty.
In some instances, you may be party to a credit default even if it isn’t your fault – such as a housemate forgetting to pay a bill that was in your name. These can follow you around for up to five years! Getting advice on how to get defaults and other errors removed from your credit history is beneficial to your car loan application.
Be upfront and honest
The worst thing you can do is hide your credit or fudge your numbers – lenders and brokers have seen it all and will know if you do! Just be upfront and honest with your situation and your broker will do the best they can to help you get car loan at a rate that’s reasonable despite your credit history. You can still get a car loan with unpaid defaults too – so be upfront with everything on your credit history before they make a check.
Always have a budget in mind
Having a spending limit is always a good thing when it comes to any sort of purchase, especially cars. Create a preliminary budget that takes your income and spending into account. Your remaining funds after you’ve taken care of necessities will give you a decent idea of what you can afford. Doing some simple loan calculations to give you an idea of repayments will also make sure you don’t go overboard and assist you in borrowing just what you can afford – just maybe lay off the expensive electric cars!
Have evidence of good borrowing
You must offer lenders every reason to believe in you, and the best way to do so is with a paper trail of proof that you’re a good borrower now – even if you may not have been in the past. You should compile as many pay stubs, tax returns, proof of address, and bank statements as you can to demonstrate your income, stable housing situation, savings, and/or your commitment to paying off debts. When evaluating your application, many lenders consider this proof to be of the utmost importance – as much or more than credit scores in some cases.
Pay off debts or have a deposit
Try to put more of your money towards paying off any additional obligations that are keeping you up at night. Being regularly close to your credit limit on a credit card might now lower your credit score because of recent changes to credit reporting (called comprehensive credit reporting). Saving money for a deposit on a car shows lenders that you’re willing to share part of the risk rather than putting it entirely in their hands. Also, don’t pay off loans with other loans! The worst thing you can do.