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The Ultimate Guide to Bad Credit Finance

Chapter 2

Different types of Bad Credit

Chapter 3

Should I get a Bad Credit Loan?

Chapter 4

Lower your risk and lower your rate

Chapter 5

Paying out a bad credit loan early

Chapter 6

Advantages and Disadvantages of Bad Credit Finance

Chapter 7

Ways to reduce your monthly repayments

What is a Bad Credit Finance?

Introduction to Bad Credit

Do you have bad credit? Or do you keep getting knocked back for finance and you don’t know why? Do you keep hearing people say things about “low credit score” and an “active credit file” and you don’t know what any of it means? Don’t worry, when it comes to giving people a second chance, this is Credit Capital’s specialty. Whether you have defaults, paid or unpaid, part IX or full bankruptcies, we have the tools and the know how, to get you a fair deal when everyone else is saying “no.” We understand circumstances can happen in life which can be outside of your control which can attain credit issues as a result. We’ve seen it all, and we know how to get your credit file back on track. Don’t be put off because everyone else has told you it can’t be done. Bad credit financing is a specialised process that many brokers don’t understand. Our team has years of experience when it comes to getting even the trickiest situations the approval they deserve.

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two men talking about finance

What is a Bad Credit Loan?

A bad credit loan is a specialised product tailored to people that are deemed a high credit risk by lenders. Your credit file holds information the lenders use to help determine your creditworthiness and whether you are “high risk” or “low risk” when it comes to lending. Things on your credit file such as defaults, court judgements, bankruptcies, or even just a high level of enquiries can cause you to be deemed “high risk” to lenders. Bad credit lenders specialise in these types of loans. At Credit Capital, we have access to all the major bad credit lenders in Australia, there’s a different product for every situation. The important thing to understand with bad credit loans however, as the loans are deemed high risk, the lenders do charge a higher rate to offset their risk. We’ve heard the saying “rate for risk” before, and it’s the same when it comes to bad credit loans. The good news is however, a bad credit loan can lower your risk in the long run.

Different types of Bad Credit

Account Defaults

These are the most common forms of bad credit. When you don’t pay a bill, or credit repayment, after the credit provider has attempted to recover the debt unsuccessfully, a default will usually be listed on your credit file and remain there for up to 5 years from being listed. The most common forms of defaults are phone bills, or utility accounts, but also loan and credit card repayments will also appear as defaults on your credit file if unpaid.

How a default is viewed by the lender varies upon many factors: How long ago was the default listed? Is the default paid or unpaid? How long from when it was listed was it paid? Is the default a utility or financial default? Is the default a once off or is it part of a collection of defaults? What circumstances lead to the default and how have circumstances improved?

By understanding the answers to all the above questions, we are able to workshop, and have the knowledge to present the deal in the right way to the right lender, to get the best result each time for our customers.

Court Judgements

Similar to a default, a court judgement is listed on your credit file if a court ruling determines you to be liable to pay a particular debt. The most common court judgments we see are for un-paid council rates, however other things such as debts to suppliers for self employed applicants are also common.

The way a lender assesses a court judgement is a similar process to how it assesses a default. Lenders asses factors such as: How long ago was it listed? Is it paid or unpaid? How long from when it was listed was it paid? Is the judgement a once off or is the applicant a habitual offender? What circumstances lead to the judgement and how have circumstances improved now?

By understanding the answers to the above questions, we build a profile so we can present the application to a lender that will look past only what is listed on your credit file so that you can get the approval you deserve.

Bankruptcies (Part IX, Part X)

Bankruptcy is a legal process where you’re declared unable to pay your debts. This can either be done voluntarily (debtor’s petition) or someone you owe money to can bankrupt you through a court process (creditor’s petition). When you are bankrupt, a trustee is appointed to manage your bankruptcy. The trustee must be aware of all your income, assets, and liabilities, and may sell some of your assets to help pay the debts.

There are 2 forms bankruptcy:

Part IX – This is considered a less serious form of bankruptcy. A part 9 debt agreement will be entered into when although the debts may be out of hand, might not be completely uncontrollable. The trustee will take control of your debts and and take over all communication with your creditors. You will enter a payment plan with your trustee to repay the debts.

A Part IX debt agreement will usually last 4 years, but can be paid off early. Once paid off, your credit file will be updated to reflect being discharged from the agreement, however this will remain on your credit file for up to an additional 3 years still placing you in a high risk category.

Part X – This is considered full bankruptcy, where your debts have exceeded a point where it is realistic that they could ever be repaid. Repayments may still be required however if your income exceeds a certain level. Once you have entered full bankruptcy, you will be unable to attain credit for a minimum of 3 years until discharged. When discharged, your credit file will reflect you being discharged from bankruptcy for up to an additional 4 years.

Being a discharged bankrupt, you are still in a high risk category, however there are options for finance. Similar to our other Bad Credit loans, it comes down to understanding the whole profile. People do fall into circumstances that can occasionally be outside of their control, so it all comes down to being able to demonstrate to the lender that current circumstances have significantly improved over the circumstances the lead to the credit issues.

Active Credit File / Low Credit Score

This is a credit issue we are seeing more often. You may have never received any defaults, court judgements, or bankruptcies in the past, however you keep getting declined and people keep telling you it’s because you have a low credit score or an “active credit file.” Your credit file holds a large amount of information about your credit activity, and is scored based on the information. Beside your credit score is the statistical likelihood of you having adverse credit within the next 12 months reflected as a percentage. More and more lenders these days are putting a stronger focus on your credit score meaning your application could be declined as a result of a low score even if you’ve always paid everything on time.

There are several factors that affect your credit score, many of which the majority of people are unaware of:

1. Credit Infringements – this is the obvious one. Defaults, Court Judgements, and Bankruptcies, will all significantly reduce your credit score, or cause you to not have 1 at all (bankruptcies exclude you from having a credit score)

2. Enquiries – This is the one that most people are unaware of, but can have drastic impacts on your ability to attain credit. Every time you make a credit enquiry, that will be listed on your credit file and lower your credit score. The types of enquiries that get listed aren’t just for loans either; credit cards, and even phone and utility accounts are included as well. It may seem quite innocent, you might be doing some online banking one day, you click on a banner ad for a 0% credit card balance transfer, then you just click a few buttons to apply just to see if you’re eligible. That was easy wasn’t it? That was just some random ad that popped up though. You’re probably better off shopping around now just to see if there’s better value cards out there. Within 15 minutes you’ve applied for 5 credit cards you don’t want. You pick the one you want then cancel the rest. 6 months later you apply for a loan and get declined. The person you’re speaking to keeps saying “active credit file” and “low credit score” and you have no idea what any of it means.

When an enquiry appears on your credit file, the information regarding who, when, and what are listed, but whether the application was approved or declined is not. This means if you have a large amount of inquiries on your credit file, especially if they occur in a short space of time, your credit file starts to look like you’re being declined everywhere. Many lenders will decline you based on a low credit score before even looking at the rest of the application.

3. Poor Payment History – This is a more recent addition to credit reporting. Most of your financial accounts (loans, credit cards) will now have their payment history listed on your credit file. This can either be a positive or a negative depending on how diligently you keep up with all your accounts. Late, or missed payments on loans or credit cards can now significantly reduce your credit score. The upside being, if you pay everything on time, your credit score will be very high.

Should I Get a Bad Credit Loan?

Taking the steps to ensure your credit file moves in the right direction

Ask yourself -> What do I need?

Bad Credit Finance can sometimes be a scary thing to get involved in for some people. Things haven't gone perfectly in the past, you have credit issues on your file, the only way to get finance now is to go for something with a high rate and high fees which just means it's going to be even harder to pay back. You've been down the path before of taking out a loan you couldn't pay back and letting it happen again is the last thing you want to do. This is a good concern to have, the more concerned you are about these factors, the less likely you will revisit your previous issues. The important question to ask yourself when taking out a bad credit loan isn't, "what do I want?" but, "what do I need?" We all want to drive a flash car that makes us the envy of everyone we know, but that won't always get you where you want to be in the long run. By making compromises, and rather going for what you want, and only going for what you need, you can fast track yourself to getting your credit file back on track. If you go for a less expensive, less flash car, that will do everything it needs to, you not only decrease your chances of defaulting again, but you also increase your disposable income which can be used for family holidays, or be put into savings. By the time you've finished paying off your bad credit loan, you will have got your credit file back on track and managed your finances to the point where you CAN start asking yourself, "What do I want?"

Why should I get a bad credit loan?

Want to save money in the long term?

It will more often than not save you significant money over the life of your loan if rather than buying the cheapest car you can afford with your hard earned savings, you take out a loan for a new car with repayments that comfortably fit within your budget. You get to keep your money in the bank for emergencies, or that family holiday you're saving for, but most of all you reduce your risk of having to fork out for unexpected maintenance costs.

man with a pen in hand thinking about his car

Need a car for getting from A to B?

If you are on a budget, and just need a car to get you to work each day or drop the kids off at school, quite often going for the cheapest option can end up costing you a lot more in the long run, due to their higher fuel and maintenance costs.

Young woman smiling interested in getting a car loan

Want a car with low running costs?

Although there are many cars on the market that can be bought with cash quite cheaply, usually these cars are cheap because their running costs are much higher. By taking out finance for a car you might not be able to afford with cash, you could be saving yourself money in the long run by reducing your maintenance and fuel costs.

young mum thinking about what type of car she will need for here family

Want peace of mind?

Once you’re comfortable with your monthly repayments for your loan and comprehensive insurance (all of which we can assist you with). You can have peace of mind knowing that you won’t have unexpected expenses to keep your car on the road and keep your life running on time. We can even extend the manufacturer’s warranty for you to ensure peace of mind for an even greater period if you don’t plan on upgrading your car once the manufacturer’s warranty expires.

Want to get your credit file back on track?

When you're in the "bad credit" category, the best way to get back into the "good credit" category is by proving to lenders you've got yourself back on track and you can keep up with a fixed loan commitment.

Lower your risk and lower your rate

Getting your life back to where it should be

How can a bad credit loan lower my risk?

If you’ve had credit issues in the past, one of the best ways to get your credit file back on track and lower your lending risk profile, is by proving to lenders that your circumstances have improved and you’re able to keep up with your commitments. By taking out a bad credit loan, and making all payments on time, you will be demonstrating that you’re no longer a lending risk. This is called "correctible credit." Especially since the cost of bad credit loans is much higher than good credit loans, as they do attract higher rates and higher fees, by being able to keep up with that commitment you are positioning yourself to be a great candidate for a good credit loan the next time you apply.

row of doors meaning which option to choose
spend more money now to save later-min

Spend more now to save later

Spending a bit more on a car loan now can save you thousands down the track. Many people dream of owning their own home one day, and unless we're lucky enough to win the lotto, usually that means we need to get a mortgage. If your first loan after experiencing bad credit is a mortgage, then the interest rate on your home loan will be much higher than what it would be if you already had correctible credit. A bad credit car loan generally has much higher interest rates than a bad credit mortgage. However, as car loans are a much smaller amount, financed over a much shorter term, the difference in interest expense between a bad credit, and a good credit car loan, is minimal compared with the difference in interest expense between a bad credit, and a good credit mortgage. By correcting your credit with a small car loan, you position yourself to save thousands down the track by putting yourself back in the good credit category. The quicker you can repair your credit file after attaining credit issues, the quicker you can get back to living life the way you want to.

Paying out a bad credit loan early

Can I pay out a bad credit loan early?

Yes, of course! At Credit Capital, all of our loans offer you the option of making additional repayments to reduce your interest, and pay the loan out early. This can be done with regular, or sporadic additional repayments, it can be done as a lump sum, or refinancing may even be an option as well. All lenders have different terms and conditions when it comes to early exit charges. The great news with our bad credit lenders is they have some of the lowest early exit fees of all of our lenders, many charge none at all. The most important thing to understand with bad credit loans is that you’re not locked in. Our goal is to work with you to get your credit file back on track. Many of our customers will have a bad credit loan for only a short time. Once we’ve been able to demonstrate you are no longer high risk, the doors are open for refinance or upgrade options. Keep in mind, lenders usually need to see loans running for a minimum of 12-18months before they will consider the loan as correctible credit.

man sitting watching sun rise

Advantages and Disadvantages of Bad Credit Finance

Advantages

Quick, easy, stress free

We have a specialised team dedicated to getting all Australians the finance they deserve. We've seen it all, so know how to deal with any situation, and have the technology to process quickly without any hassle from your end

No obligation

All our quotes are obligation free. If you're unsure of where you stand in the market, and want to find out more about what can be done for you, have a no cost, obligation free chat with one of our consultants today to find out more

We compare more so you save more

At Credit Capital, we have access to all the major bad credit lenders in Australia. We compare your application with more lenders so you always get the best result.

Get life back on track

Getting back on the road and repairing your credit score means you won't be compromising your lifestyle anymore.

Disadvantages

Higher cost

The main disadvantage to bad credit lending is the higher interest and fees that the lenders charge. When you are a high risk applicant, the lenders need to charge more to offset their risk.

Terms can be restrictive

Terms and conditions on bad credit loans can be more restrictive than good credit loans. Many bad credit lenders won't allow 5 year terms, and there can be greater restrictions around the car you purchase. At the end of the day this is to protect you as much as it is to protect the lender.

Applying can damage your credit score further

Every application made on your credit file weakens your credit score. The mere act of applying for bad credit finance could put you into a worse position than now if the application is declined. This is what makes it so important to talk to a professional when applying for bad credit finance. At Credit Capital, we have the experience to know what is a deal and what isn't. If we don't see any chance of your application being approved, we won't apply thus weakening your credit score, we will provide a clear list of instructions of what needs to be done so we can help you out in the near future.

Ways to Reduce Your Monthly Repayments

Borrow less

It may sound simple, but the less you borrow, the lower your repayments will be. If you save money on the purchase of your car, or if you put deposit towards the loan, you will be reducing your repayments from day1.

Extend the loan term

Many lenders these days will allow you to finance the car up to 7 years. The longer period you extend the finance for, the lower your repayments will be. This isn't always an option with bad credit financing, however it can be great if you don't want the repayment to have as much of an impact on your budget. A longer term however can also mean you will pay more in interest. Speak to one of our professional consultants today to get free general advice on what might work best for you.

Refinance your car

We've all been there before. Buying a car is an emotional purchase, and in the heat of the moment it can be easy to be talked into signing up and paying more than you should for something that you just need to have right now. Maybe the credit issues you had previously have been rectified, and now you've got things back on track you want to get out of your bad credit loan and into a good credit loan. We make refinancing easy. Talk to one of our consultants today to see how much less you could be paying on your current loan.

Lower your risk

It's not always an easy thing to do, but in a rate for risk world, the more you can lower your risk, the lower rate you will be paying.

How to lower risk

1. Type of car - Lenders see new cars as lower risk compared with used cars. This is due to the fact that a brand new car will hold more value, therefore the lender will have a greater chance of recovering their loss if they have to repossess the car. Also new cars generally have lower running costs, so the fact you will less likely receive unnexpected maintenance bills during the life of the loan means it is more likely you will be able to keep up with the repayments on your loan. 2. LVR (Loan to Value Ratio) - The loan to value ratio is calculated based upon the amount of money you are borrowing vs. what the lenders believe the car is worth. LVR is calculated as a percentage e.g. if LVR is 110%, that means you are borrowing 110% of what the lenders believe the car is worth. The lower the LVR, the lower risk the application is for the lender, as they will have a much greater chance of recovering their loss if they repossess the car. Factory accessories are usually taken into account when calculating LVR, however aftermarket accessories are not. If you have your heart set on a car that has been heavily customised by the previous owner, be prepared you may have to pay a higher rate as the LVR will probably be higher. 3. Deposit - By providing a deposit towards the car you can significantly lower the risk of the application. By doing this, you're not only reducing LVR, but you're also showing some commitment from your end. If you commit some of your own hard earned savings to the car, rather than just spending all of the banks money, you're demonstrating your devotion to paying for the car.

man doing limbo with fire

How to apply for a bad credit loan

1. Find out your budget

Before approaching any lenders or searching for cars, the most important thing for you to know is how much you can afford each month for your car. This includes not just the repayment for the loan, but also your insurance and running costs for the car as well.

2. Choose what do you want

Whether you have a specific asset in mind, or just a set of requirements you needs to fulfil, everyone has different wants and needs when it comes to taking out finance. The more you can let us know about what you want or what you need, the better we are able to fulfil your dream.

3. Prepare Documentation

When it comes to taking out finance, there is no such thing as too much documentation. We will always strive to make the process as smooth as possible with the minimum amount of documentation, however, the more prepared you are, the quicker we can make the process for you. Be prepared with IDs, residential and employment histories, payslips, bank statements, or tax returns and profit and loss statements if you’re self-employed. The more prepared you are the more efficient we are.

4. Speak to a Professional and apply

Once you know the above, enquire online or call us directly and we can help you with the rest. If there’s anything above you need assistance with, not to worry, our devoted team can answer all your questions and find the deal that best suits your requirements. We can guide you along the way no matter how early, or late, in the process you are. We put your mind at ease and make finding the best deal easy from start to finish.

Book a free consultation with one of our experts today!

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