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Steer Clear of Rejection: Tips to Get a Loan with Bad Credit

If you find yourself in the challenge of needing a car loan, and you either have bad credit, then you’re not alone. Let’s walk you through the steps to overcome hurdles and secure the car financing you need.

Understanding the Impact of Bad Credit

Before we delve into the strategies to ‘fix it fast,’ let’s understand how bad credit can affect your car loan journey. Bad credit can result from various factors, such as missed payments, defaults, or high credit card balances. At Motorloans, we’ve witnessed numerous cases where our clients with bad credit have faced challenges in securing loans before they come to us.
If you have kept up with the news for the last 5 years, you would know that the Labour Government a few years back tried to fix consumer lending laws to make lenders more responsible in decisions on loans that might put you into hardship.

These new restrictions and rules the Lenders had to abide by, invertedly pushed out most people who would have ordinarily qualified for a loan. Not to mention the subprime (2nd and 3rd tier) Personal Loan & Car Loan market as well.

This meant that they had to look at every line in your bank statements, and ask what it was, and why you spent it, and then factor that into your budget. Fish and chips, lotto tickets, lollies for the kids and the cheeky 5’er you put on ‘Santas not here’ to place 4th was all taken as a weekly expense.

As you could imagine most people who could afford it and just spent their money enjoying themselves ding normal things, just couldn’t anymore according to the law – it stopped being about bad credit and became all about how many drive throughs you went to, and whether having Netflix was important to you.

Nowadays the laws have softened somewhat, and we can work with this. But Bad Credit has taken on a new meaning. Your credit rating has evolved from a standard of defaults or no defaults being the difference between good and bad, to monitoring your activity whilst paying for loans and services you have taken out. It’s known as comprehensive credit reporting.

Just quickly, how this works is that every loan or every service you take out, i.e., power, sky, car loan, one telco etc. all tracks your payment behaviour. You are rated on a monthly history for each account on a moving scale for each month, this will record if you pay on time or pay behind. 0 is on time and 1 is a month late and so on, when it gets to 3 months late or more, it turns red. This is so lenders can clearly see how you pay your bills. And this translates to an overall credit score out of 1000 (including defaults, judgements, unpaid fines, and insolvencies).
This means that if you just pay your bills a month late, or a few months late, it can be just as bad as having a default according to some mainstream lenders – Check out the Yonder app and see for yourself. Some mainstream and traditional lenders won’t even lend to a person with a score less than say 500, they won’t even look at it and instantly decline them – you can see how daunting it is for people who don’t know that.

But that’s what this is about – We all face some issues from time to time, setbacks and other events that may affect our ability to pay a bill on time, or sometimes at all. And its good to know how the credit is rated so that you can change your bill paying habits and increase your score.

For instance, a client of ours struggled with a low credit score because she had to take some time off for medical reasons and got behind on her bills for a few months, she still paid them though, just a few months late. She went to get a car loan herself initially through a Mainstream Lender, and was declined, she didn’t have any defaults, and despite her years of stable income, just felt she couldn’t get approved, finally she came to Motorloans, we got to understand her situation and got her a loan through a smaller finance company but not well known to the public. Understanding the impact of bad credit is the first step towards finding a solution.

Bottom line: Pay Bills on time as much as you can in normal life, otherwise it will affect your credit score.

Assessing Your Current Financial Situation

Now, let’s assess your current financial standing. Take a moment to evaluate your income, monthly expenses, and existing debt obligations. Creating a comprehensive overview or Budget of your finances will empower you to make informed decisions throughout the car loan application process.

If you are struggling financially, then organisations like DebtFix or Money Talks can help you.

As we are not financial advisers, we don’t offer financial advice, but one tip I often share with my clients is to categorise their expenses into ‘must-haves’ and ‘nice-to-haves.’ Look at areas they overspend, i.e. it’s easy to get carried away on the TAB or online gambling, but your bank statements will highlight too much spending and it can have adverse outcomes to any loan application. Showing 35 transactions to ‘luckyslots’ is not an attractive sight when your statements come in.
The secret is balance. This helps prioritise spending and identify areas where adjustments can be made to accommodate a car loan.

Researching Lenders Specialising in Bad Credit Car Loans

The problem here is time, no one advertises Bad Credit Loans on their website anymore, this is why at Motorloans we know who does and doesn’t deal with bad credit. We have the relationships to work with you and the lenders to be able to get you a loan. It’s all about presentation. We do it all for you, saving you time and energy doing it yourself and risking getting a decline. So, you don’t have to worry – Just apply here

Building a Realistic Budget

Now, let’s talk about budgeting for the Loan. Creating a realistic budget is crucial when seeking a car loan with bad credit. Your budget should not only cover the loan payments but also factor in insurance, maintenance, and unexpected expenses.

Take inspiration from Mark, one of our clients who we secured a car loan despite his bad credit, by presenting a well-structured budget to the lender. Demonstrating financial responsibility can positively impact the approval process.

Choosing the Right Car

When you have bad credit, choosing the right car becomes a strategic part of the process. Opt for a reliable vehicle that fits both your lifestyle and budget. This is important, because lenders by law must ensure your choice of vehicle aligns with your purpose and requirements, so choosing a sensible vehicle will speak volumes to your character and responsible decision making.

Improving Credit Score Before Applying

Before you start the loan application process, consider taking steps to improve your credit score.

Download Yonda and have a look at the current state of your credit.

Simply making sure all debts recorded are paid on time will improve your overall score and quickly. If you have any defaults, promptly calling the collection companies and deciding to pay will improve your score in time.

Alex, a client in his 50s, diligently improved his credit score for 3 months before applying for a car loan. This initiative-taking approach not only increased his chances of approval but also led to more favourable interest rates.

Get your Bank Accounts in order

Given that we are not financial advisers we cannot offer financial advice, however it is important to make sure that your bank accounts are in good order, expenses like BNPLs: After Pay, Labuy and Zip all count towards your affordability, so make sure you pay these off.

Activities like Gambling, dishonours, and overdrafts are a negative point on our bank records. In a broad statement, ensure that you are living and spending appropriately for 3 months or so. Prepare and stay away from activities that are likely to be questioned by a lender.

The Loan Application Process

Now that you’re well-prepared, it’s time to think about the loan application process. Pay close attention to the details, fill out the application accurately, and provide all necessary documentation. Remember, transparency is key to building trust with lenders.

Some clients of ours have faced initial rejections due to incomplete documentation, especially around the financial section. We run a 100% online 5 mute application process that gives an instant result, so we don’t physically see applications that aren’t filled in correctly.

What to Do if Your Application is Rejected

If your car loan application is rejected, don’t be discouraged. Evaluate the reasons for rejection, consider alternative options, and seek professional advice if needed Debtfix and Moneytalks in one way to get back on track. Remember, rejection is not the end; it’s an opportunity to reassess and improve.

One of our clients, James, faced rejection initially. Through careful evaluation and assistance from a financial advisor, he identified areas for improvement, ultimately coming back sometime later and was able to get a loan through Motorloans, and securing the car loan that fit his budget.

Conclusion

Congratulations on taking the initiative to fix it fast and secure a car loan with bad credit. Remember, the Responsible Lending Code and CCCFA are here to protect your interests, ensuring fair and transparent lending practices. By following the steps outlined in this guide, you can confidently navigate the car loan application process and drive away with the vehicle you need.

Call to Action

If you have questions or success stories to share, feel free to leave a comment below. For personalised assistance, don’t hesitate to reach out to us, empower yourself with knowledge, and let’s make your car ownership dreams a reality!

If you are not sure if you would qualify for a loan, we have a 60 second quiz, this is an obligation free loan checker, no credit checks, but it’s to see if you would qualify for a loan today, it gives you an instant answer back and you don’t need to create an account to do it, just head on over here.

Good Luck!

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