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Bad Credit Car Loans: How Do They Work?

Bad Credit Car Loans: How Do They Work?

Have bad credit but you need a car loan?

Here’s what you should know about getting car loans with bad credit.

If you have a bad credit score, getting approved for a car loan can be slightly more difficult, but it’s not impossible. You still have a few options available to help you get the car you want, even with a bad credit score.

Pocket Cash can help you find a lender who could approve you for a car loan with bad credit. People deserve second chances and we know your credit score isn’t the only defying factor. We’ll aim to find a lender who can look at more than just your past relationship with money.

Here’s what you should know about bad credit car loans as opposed to regular car loans:

  • Yes, you can apply for a bad credit car loan, but keep in mind that because your score may make you riskier to lend to, so the interest is often higher for those with bad credit.
  • Secondly, depending on how much you plan on borrowing, your loan could turn into a secured car loan. This means that you will need to provide an asset as collateral, just as extra security. This asset can be the car you’re buying, your home, or expensive belongings.


Know that if you are concerned about debt or bad credit, you can speak to someone. If you find that you’re in a stressful financial situation and are unable to handle debt, talking to a financial advisor or free financial counsellor could be helpful. 

Remember, there is always someone there to help and talk to when you find yourself financially or emotionally distressed.  

  • National Debt Help Hotline: 1800 007 007
  • The Department of Human Services: Crisis and special help
  • Lifeline: 13 11 14

What you should know about car loans

Buying a car is a significant purchase that requires a lot of consideration. When you start the process of looking at different cars to find the right one that fits your goals, budget, and needs, the first thing you’re going to do is compare. You’re likely going to compare different cars by their make, model and features. This is exactly how you should treat any type of loan.

A car loan comparison is essential to finding the one that you can comfortably manage and fit into your budget. Just like comparing a car’s make and model, you should compare different loans’ interest rates and car loan repayment terms. We’ll aim to help you find the right lender, even with bad credit. You want to compare the interest rate and loan term. However, one of the most important factors of any type of loan is how you can manage to make repayments. Let’s get into the details of how bad credit car loans work.

What is an interest rate?

The interest rate that we charge on your loan is a percentage that will be a part of your repayments. Think of this percentage as a small cost of borrowing the money. You can get a loan on a fixed interest rate, or a variable interest rate. A fixed interest rate is simply a rate that won’t change over the entirety of your loan term.

Many people may choose this option as a form of security because they know this rate can’t increase, and more importantly, they know exactly how much will be deducted with every repayment. A variable interest rate, on the other hand, is a rate that can change. You may want to also choose variable interest on your loan as it means your rate could decrease at some point of your loan term.

What is your loan term?

The loan term is the amount of time taken to repay the loan in full. You can choose your loan term accordingly with your budget and plan. We’ll work to help you find a lender that can offer you a loan term that works for you. If you choose a shorter loan term, you might find that it reduces the amount of interest paid overall. While that option does get you out of debt quicker, keep in mind that your repayments will be much higher. Managing a certain repayment is vital to your budget because missed payments could do affect your credit score and credit report. Additionally, if you choose a secured loan with high repayments, missing them could mean your collateral would be repossessed.

On the other hand, if you choose a longer loan term, you will obviously have lower repayments. Although lower repayments may seem appealing, you must also remember that longer loan terms could mean you could pay more interest. Whichever you choose, make sure your loan term suits your income, budget, and financial plans.

How can I improve my bad credit?

It’s not impossible to take out a car loan with bad credit. However, we can give you a few tips on how to improve your bad credit if that’s your current goal.

Your credit score is a rating that shows a lender how risky you would be to lend to. Here’s a chart of credit scores in Australia along with what they mean for you:

  • 833 – 1200: Excellent
  • 726 – 832: Very good
  • 622 – 725: Good
  • 510 – 621: Average
  • 0 – 509: Below Average

Although can’t improve your credit score overnight, there are many things you can do to improve it. Here’s how you can maintain or improve your credit score over time:

  • Constantly check your credit report: Checking your credit report at least once a year ensures there are no errors. The reason why it’s recommended you check your credit report frequently is to notice any errors such as late payments that could’ve been incorrectly added to your credit file.
  • Avoid overdue debts: Make sure to pay all your bills on time. A helpful tip would be setting up payment reminders through your personal device or with your financial provider.
  • Reduce your debt: Decreasing any existing debt could maintain or increase your credit score and could help your chances with taking out a loan.

Looking for a reliable car loans calculator? Find out more! Or maybe you’re looking to find a better deal on your car loan? Pocket Cash can find lenders to refinance your car loan.

Check out this Pocket Cash guide for how to get a loan with bad credit!

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