Are you worried about how your credit score might affect your chances of getting a good car loan? If so, you might be thinking your only choice is to apply for bad credit car loans. While there are a range of car loans for bad credit available, they’re not all created equal.
How can you avoid the traps associated with bad credit car finance? And is it possible to secure a good car loan when you have a bad credit score?
What Are Bad Credit Car Loans?
A bad credit car loan is a finance product designed for people who have a low credit score or a less-than-stellar financial history. This is often the case with younger Australians who have less experience with being financially responsible. According to data from Experian, the average 18-24-year-old in Australia has a credit score of just 564 (considered ‘poor’), while the average 25-34-year-old’s credit score is only 610 (‘fair’ but still well below the national average).
If this is the situation you find yourself in, then bad credit car finance may seem like an ideal solution. However, these loans could make your credit situation even worse if you can’t avoid some common traps.
Common Traps of a Bad Credit Car Loan
What are some of the financial dangers associated with a bad credit car loan?
- High Interest Rates: Exorbitant interest rates can lead to you paying more for the car than you should while also making it difficult to repay the loan.
- Predatory Lenders: Unfortunately, there are some lenders out there who are happy to take advantage of borrowers with poor credit.
- Excessive Fees: Watch out for excessive fees that may be charged by the lender for processing the loan or for paying out the loan early.
- Long Loan Terms: Longer loan terms can reduce monthly repayments, but they can also result in you paying significantly more interest.
How to Avoid Bad Credit Car Finance Traps
Fortunately, there are some simple steps you can take that will help you to avoid bad car finance traps, such as:
- Check Your Credit Score: Don’t just assume you have a poor credit score. Obtain a copy of your credit history and check carefully for any errors that could be hurting your score.
- Compare Lenders: Don’t apply for the first loan you see. Shop around and compare loan products from a wide range of lenders. This will help to ensure you find the best deal to suit your financial situation.
- Read the Fine Print: Take time to carefully review all the loan terms and conditions to avoid any unpleasant surprises in the future. If you’re not sure about something, ask the lender to explain it to you.
- Get Expert Assistance: The easiest way to avoid bad credit car loan traps is by consulting with an experienced finance broker. They can do all the hard work for you and recommend a loan that offers the best outcome for your specific situation.
How You Can Secure Good Car Loans for Bad Credit
If you’re worried about your credit score, don’t give up! It is possible to secure a good car loan despite a bad credit score. What can you do to improve your car loan options? Start by taking steps to improve your credit. This could include paying down existing debt and making sure all your bills are consistently paid on time.
Your next step should be to establish a realistic budget. Having a clear understanding of what you can afford will make it easier for you to negotiate with lenders regarding interest rates and loan terms.
Muscle Money Can Help You Navigate Bad Credit Car Loans
A bad credit score doesn’t mean you have to settle for a bad car loan. By checking your credit score, comparing lenders and working with an experienced finance broker, you can sidestep common finance traps and secure a car loan that’s right for you.
Ready to explore your options? Contact Muscle Money today for expert advice on how to find a car loan that fits your financial needs.
Caleb Waye-Harris, Senior Manager of Asset Finance at Muscle Money, has almost 15 years of relevant experience in the finance industry. His extensive background includes project management, consumer and commercial lending and asset-based lending.
