What Is a Bad Credit Car Loan?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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, updated on June 9th, 2023       

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A bad credit car loan is designed to help people with poor or limited credit history get car finance when they need it.

Lenders use your credit history to help assess car loan and other loan applications because it gives them an idea of what type of customer you will be.

Bad credit is when your credit file shows that you have not managed loans or other accounts well.

It could be that you missed a couple of payments on your credit card, defaulted on a loan, struggled to manage a utility account or even that you were knocked back for other loan requests.

But whatever the reason behind bad credit, it often means lenders will deem you a “high risk” when you apply for a car loan, as credit reporting bureau Veda Advantage explains:

“The lender will assess the information returned (as a result of their credit check) against a set of internal criteria, as established by the individual lending organisation.”

“If you get rejected…it may be because the lending organisation made a decision based on all the information available to them, such as your level of debt and information on your application form and credit file.”

While there are a number of things you can do to rebuild your credit, in the short term it could mean you are left without standard car loan options when you really need them.

But bad credit car loans are an alternative that places less emphasis on your credit history so that you can get a car when you need it.

How Bad Credit Car Loans Work?

The basic features of bad credit car loans are similar to those of secured car loans, with the biggest difference often in the rates and fees charged.

While bad credit car loan providers are more likely to approve you for finance when you need it, they still need to reduce the higher risk that comes with a history of bad credit.

That means they could charge higher interest rates for lending you the money. Bad credit car loans could also have higher administration fees or charges for late payments.

These features may be the price you have to pay when you are dealing with bad credit but just as with standard car loans, they vary between lenders.

That makes it more important to compare bad credit car loans so that you know you are getting the best possible finance deal despite your credit history.

Once you have found a bad credit car finance option that seems like a good fit, you can apply for the loan and go through the rest of the steps needed to get your new car.

Investing in a bad credit car loan also has the potential to help improve your credit rating by giving you the chance to stick to the payment plan and prove that you can manage this type of finance.

At first glance bad credit car loans do not seem to have the best features available, but the real advantage to this type of car finance is that it offers flexibility and convenience when standard lenders are not an option. 

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