What are Bad Credit Car Loans

What are Bad Credit Car Loans?

Last updated: 19 July 2018

When it comes to car loans, having a poor credit history or a low credit score does not always mean you will be unable to get vehicle finance. There are some lenders in the market that specialise in lending to people with less than perfect credit which would prevent them from qualifying for a standard car loan.

These types of loans have a range of different names like “Bad Credit” or “Second Chance” car loans, but for convenience, we will call them credit-impaired car loans. Credit-impaired car loans might be suitable for a person who has a low credit score resulting from:

  • A default on a loan
  • Bankruptcy


If you have been deemed too high of a risk to qualify for a standard loan, you might still qualify for a credit-impaired loan. The downside is that the interest rates for these loans can be much higher than the rates on a standard loan and they can be as high as 19% p.a. Another common feature of credit-impaired car loans is that they may charge application and establishment fees that are significantly higher than standard car loans. These fees can be as high as $3,000 or greater, which along with monthly account and administration fees will add significantly to borrowing costs.


When lenders are assessing whether an applicant is suitable for this type of loan, they will look at things like:

  • Employment and the ability to repay the loan
  • Ability to obtain car insurance
  • Residential history
  • Documentation of income and expenditure (like payslips, credit card statements or bank statements)


Although the interest rates for credit-impaired loans are higher than standard car loans, they can help people buy a vehicle if they have previously been declined for a loan. This can be particularly important for people who rely on having a car for their employment, so they can then work towards clearing their debts. Another benefit is that someone who takes out a credit-impaired car loan and demonstrates they can repay the loan may be able to improve their credit score over time.

However, you should consider if these types of loan are right for you. With the application and establishment fees being as high as $3,000 or more, a second-hand vehicle could potentially be bought for that amount, avoiding the need for a car loan. Avoiding a car loan altogether may help you meet your current ongoing financial obligations and not overextend yourself. You may even be able to save some money on the side for a new vehicle down the track when you are eligible for a standard car loan.


Visit our Learning Hub to access more articles on Car Loans, if you want to know how to manage a healthy credit reputation, you can check out our article on the 5 tips that could improve your credit score.