Bad Credit Car Loans in Australia: How to Get Approved

When Your Car Dies and Your Credit File Is Working Against You

Your car just died. Maybe the transmission finally gave out, or the mechanic told you the repairs would cost more than the car is worth. You need transport to get to work. You need it this week, not in six months. And then you check your credit file and your stomach drops.

There are defaults sitting there. Maybe from a period when things got tough financially. Maybe from a debt you didn't even know about. Whatever the reason, you're now staring at car finance ads promising "guaranteed approval regardless of credit history" and wondering if that's your only option.

It's not. And if you take five minutes to understand how car finance actually works in Australia, you could save yourself thousands of dollars and years of financial stress.

At Australian Credit Solutions, we're ASIC Licensed (ACL 532003) and we've helped thousands of people clean up their credit files before applying for car finance. What we see, over and over, is people locking themselves into brutal loan terms because they didn't know they had other options. Let's make sure that doesn't happen to you.

What Car Finance Lenders Actually Look At

Before you start panicking about your credit score, it helps to understand what lenders are actually assessing. It's not just a single number. They look at the full picture.

Your credit score is the first filter. On the Equifax scale (which most Australian lenders use), the ranges roughly break down like this:

• Above 700: Excellent. You'll qualify for the best rates from mainstream lenders, typically 6% to 8%.
• 600 to 700: Good to average. Most mainstream lenders will still consider you, though rates may be slightly higher.
• 500 to 600: Below average. You're moving into specialist lender territory, with rates from 10% to 15%.
• Below 500: Poor. You'll likely be limited to specialist bad credit lenders charging 15% to 25% or more.

But your score isn't the only factor. Lenders also consider your income stability, employment history, existing debts, the size of your deposit, and the age and type of vehicle you're buying. A stable income with a decent deposit can sometimes offset a lower credit score.

The deposit matters more than you think. Putting down 20% or more signals to lenders that you're serious and reduces their risk. Some specialist lenders who'd reject you with a 5% deposit will approve you with 20% down.

The Predatory Lender Trap: What Nobody Tells You

Here's where it gets dangerous. The moment your credit score drops, you become a target. You'll see Facebook ads, Google ads, and dealership signs all screaming the same thing: "Bad credit? No worries! Guaranteed approval!"

What they don't scream is the interest rate. And that's where the trap sits.

Let's look at a real-world comparison on a $25,000 car loan over five years:

That's a difference of over $11,000 between the mainstream rate and the predatory rate. On the same car. For the same loan amount. The only difference is your credit file.

And it gets worse. Many of these bad credit lenders also inflate the vehicle price, add excessive fees, include unnecessary insurance products, or structure loans with balloon payments that leave you owing thousands at the end of the term.

Busting the Myths Around Bad Credit Car Finance

Myth 1: Any dealer can get you approved regardless of credit

This is one of the most common claims you'll hear, and it's misleading. What dealers actually mean is they have access to specialist lenders who approve people with poor credit — at significantly higher interest rates. "Approved" doesn't mean "approved on good terms." It means you'll pay a premium for the privilege, often thousands of dollars more than someone with a clean file.

Myth 2: In-house finance is always a bad deal

Not necessarily. Some larger dealerships offer competitive in-house finance through reputable lending partners. The key is comparing the interest rate and total cost against independent finance quotes. The problem isn't in-house finance itself — it's accepting it without comparing alternatives first. Always get at least two independent quotes before visiting a dealership.

Myth 3: You need perfect credit for a decent rate

You don't need a perfect credit score. You need a credit file that's free of defaults and serious negative listings. There's a big difference. Many people assume their credit is worse than it actually is, or they don't realise that some of the defaults on their file are invalid and removable. A credit score of 620 with no active defaults can get you a mainstream rate. A score of 750 with an unresolved default might not.

Myth 4: Paying cash is always better than financing

If you have the cash available, paying outright avoids interest entirely. But draining your entire savings to buy a car can leave you vulnerable to other financial shocks. In some situations, securing a low-interest car loan and keeping cash reserves makes more financial sense. The real danger isn't car finance itself — it's expensive car finance that you didn't need to accept.

Your Actual Options: Mainstream vs Specialist Lenders

If you have bad credit, you broadly have three paths. Understanding each one helps you make a decision you won't regret.

Option 1: Apply with a specialist lender now

This gets you a car fastest but costs the most. Specialist bad credit lenders will typically charge 12% to 25% depending on your situation. You'll need a larger deposit (usually 10% to 20% minimum) and the loan terms may be less flexible. If you genuinely need a car within days and cannot wait, this might be your only short-term option.

Option 2: Fix your credit file first, then apply with a mainstream lender

This is the option most people don't know about. If the defaults on your credit file are invalid — meaning the credit provider didn't follow the correct procedures under the Privacy Act 1988 — they can be removed. This isn't a loophole. It's the law. Credit providers are required to send you a written default notice, give you time to remedy the debt, and ensure the listing is accurate. If they didn't do all of that properly, the listing shouldn't be there.

At Australian Credit Solutions, we remove invalid defaults in as little as 2 to 6 weeks in many cases. That timeframe could be the difference between a 20% loan and a 7% loan.

Option 3: Combine both approaches

If you need a car urgently, you could arrange short-term transport (borrowing a car, using public transport, or even a cheap temporary vehicle) while your credit file is being cleaned up. Then apply for mainstream finance once the defaults are removed. A few weeks of inconvenience versus five years of excessive interest payments? The maths speaks for itself.

How Fixing Your Credit File Can Save You Thousands

Let's put real numbers on this. Consider two scenarios for the same person buying the same $25,000 car with a $5,000 deposit (financing $20,000 over five years):

Four weeks of credit repair work. Nearly $7,000 saved. And $116 less per month coming out of your account for the next five years. That's money that goes towards your living expenses, your family, or building an emergency fund so you're never in this position again.

Real Scenario: How Fixing Credit First Changed Everything

What To Do Next

If you need car finance and you know your credit file has issues, here's the smartest approach:

1. Get your credit file. Request a free copy from Equifax, Experian, and illion. Check for defaults, court judgements, and any listings you don't recognise.
2. Don't apply for finance yet. Every application creates a credit enquiry on your file. Multiple enquiries in a short period signals desperation to lenders and can lower your score further.
3. Get a professional assessment. Contact Australian Credit Solutions for a free credit assessment. We'll tell you exactly what's on your file, whether anything can be removed, and how long it would take.
4. Arrange temporary transport. If you need a car immediately, explore short-term options while your credit is being cleaned up. Borrow from family, use public transport, or consider a cheap temporary vehicle.
5. Apply for finance with a clean file. Once defaults are removed, shop around. Use a finance broker who can compare multiple lenders, and always check the comparison rate — not just the headline rate.

The difference between rushing into bad credit finance and taking a few weeks to fix your file first can be worth $5,000 to $10,000 over the life of your loan. That's not a small number. That's the cost of acting out of panic versus acting with information.

Learn more about how we help with default removal and credit repair for vehicle and business finance.

Elisa Rothschild

(BA/LLB)

Principal Solicitor & Director

With over 12 years of experience in credit law, Elisa has helped thousands of Australians remove unfair credit listings and rebuild their financial futures. She leads Australian Credit Solutions' legal team with a focus on consumer advocacy and regulatory compliance.

ASIC Licensed

12+ Years Experience

970+ Clients Helped

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