When you’re faced with financial challenges and your credit score is less than perfect, a bad credit loan might seem like a lifeline.
But before you take the plunge, it’s crucial to understand how it can impact your credit score.
Car loans for Centrelink customers
What is a Bad Credit Loan?
A bad credit loan is a type of personal loan offered to individuals with poor credit histories.
These loans often come with higher interest rates and stricter terms because lenders consider lending to individuals with bad credit as risky.
The Initial Impact: Credit Inquiry
When you apply for a bad credit loan, the lender will perform a hard inquiry on your credit report.
This means they’ll check your credit score to evaluate your creditworthiness. While one hard inquiry might only drop your score by a few points, multiple inquiries in a short period can have a more significant impact.
Tip: Avoid applying for multiple loans simultaneously. Space out your applications to minimise the impact on your credit score.
Improving Your Credit Mix
Your credit score is influenced by the types of credit you have, known as your credit mix.
A healthy credit mix includes various types of credit such as credit cards, mortgages, and personal loans.
Adding a bad credit loan to your mix can potentially improve your score if you don’t have other types of installment loans.
Payment History: The Key Factor
Payment history is the most crucial factor in your credit score, accounting for about 35% of your total score.
Successfully making timely payments on your bad credit loan can significantly boost your credit score. Conversely, missed or late payments can further damage your score.
Tip: Set up automatic payments or reminders to ensure you never miss a due date.
Debt-to-Income Ratio
Taking out a bad credit loan increases your overall debt, which can affect your debt-to-income ratio.
While this ratio doesn’t directly impact your credit score, it’s a critical factor lenders consider when evaluating your financial health.
A high debt-to-income ratio can make it harder to secure additional credit in the future.
Reducing Your Credit Utilisation
Credit utilisation refers to the amount of credit you’re using compared to your total available credit. High credit utilisation can negatively impact your score.
If you use the loan to pay off high-interest credit card debt, you can reduce your credit utilisation rate, potentially boosting your score.
Example: If you have $5,000 in credit card debt and a $10,000 credit limit, your credit utilisation rate is 50%. If you use a bad credit loan to pay off $3,000 of that debt, reducing your balance to $2,000, your utilisation rate drops to 20%, which is better for your credit score.
Longevity and Account Age
The length of your credit history also affects your score. Opening a new bad credit loan account will reduce the average age of your accounts, which might slightly lower your score.
However, as you make timely payments over time, the positive impact on your payment history can outweigh this initial drop.
Closing Thoughts
A bad credit loan can be a double-edged sword. If managed wisely, it can help improve your credit score by diversifying your credit mix, reducing credit utilisation, and demonstrating a positive payment history.
However, if mishandled, it can lead to further credit damage and financial strain.
Tips for Success:
- Borrow Responsibly: Only take out a loan you can afford to repay.
- Make Timely Payments: Your payment history is crucial.
- Monitor Your Credit: Keep an eye on your credit report to track your progress.
By understanding the nuances of how a bad credit loan affects your credit score, you can make informed decisions and take steps to improve your financial health.
Zoom Car Loans are bad credit loan specialists. Contact us today for more information.
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- Do I meet the minimum income requirements?
- How much can I borrow?
- How can I prepare for my application?
- Types of Centrelink Payments
Do I meet the minimum income requirements?
As all credit providers work on a basic principle of affordability, to be approved for a loan, applicants must meet a minimum income amount of $800 per fortnight (not including covid supplement).
This minimum amount can be solely from Centrelink payments or can include employment income as well.
This minimum amount has been put in place to protect the borrower. It’s the minimum amount that the lenders deem the borrower can comfortably make their loan repayments, while still being able to afford basic living expenses such as groceries, bills, rent, etc.
Although these measures tend to be very accurate, they do not take personal circumstances and habits into consideration.
You should always look at your own spending habits and budget to ensure you will be comfortable with any additional borrowing.
Here at Zoom, we are able to assist the large majority of Centrelink customers, however, please note that if you are solely receiving a New Start Allowance/Jobseeker, Youth Allowance, or Austudy, unfortunately these aren’t accepted income forms to qualify for a loan.
Our finance specialists work on your behalf to do everything possible to secure a loan for you, so be sure to contact us to speak further about your current circumstances if you’re unsure.
How much can I borrow?
Zoom Car Loans are a team of finance brokers, who work on your behalf to find you the best deal possible. This means we do not have any set loan amount.
The amount you can borrow will be depend on which lender we are able to go through, based on your personal circumstances.
During the application process, your broker will ask you how much you are wanting to borrow. Your finance specialists will then work with our panel of lenders to secure an offer. To avoid disappointment of not getting a car you have your eyes on, we always encourage you to obtain a pre-approval for an amount you can afford and then look for a suitable vehicle within your approval limits. Zoom Car Loans finance packages allow for both dealer and private sale vehicles.
How can I prepare for my application?
Before applying for a car loan, there a few things you can do to heighten your chances of gaining a quick approval offer. A key part of your application involves credit providers verifying your current financial situation. This is a requirement of the law, so to avoid any delays, we encourage you to check and prepare the following before applying:
- Ensure your recent banking conduct is at an acceptable level (avoid overdrawing your account, ensure no direct debit payments are dishonoured, cancel any debits that are no longer current, avoid gambling transactions and withdrawing all funds the day you receive your income).
- Make sure your rent/board/mortgage payments are up to date. Most financial institutions will complete a residential check.
- Having defaults is OK! However, it always helps if you can show the financier that you are aware of them and have made arrangement to pay them off or resolve them.
- Be truthful. Financial institutions have access to many tools to check the accuracy of the information that has been supplied.
Types of Centrelink payments
Yes! It is possible to get approved for a car loan when you are receiving Centrelink payments.
Zoom Car Loans are able to assist the large majority of Centrelink customers however minimum income requirement of $800 a fortnight does apply.
Types of payments we consider are:
• Parenting payments (single & partnered)
• Disability
• Carers Payments
• Family Tax Benefit
• Aged Pension
Newstart Allowance: please note that if you are solely receiving a New Start Allowance (including $550 covid increase), Job Seeker, Youth Allowance, or Austudy, unfortunately these aren’t accepted income forms to qualify for a loan.
Our lenders have a minimum income requirement of $800/fortnight to apply (not including the $550 temporary increase).
As a team of highly experienced brokers, Zoom Car Loans know what it takes for the lenders to approve a Centrelink customer.
If you would like to read more about to get approved for a car loan when you are receiving Centrelink payments READ OUR BLOG POST here.
We help car loans for Centrelink customers get approved!
There are minimum requirements needed to qualify for their car loans. The best way to find out is to apply online for us to find out all details and do our best to get your driving away in a good car!
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No deposit loans
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Bad credit history
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Centrelink payments
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Ex-bankruptcy
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Useful information
You should always check your options before you accept a loan and ensure that you use the free resources available throughout Australia to assist you when borrowing funds of any nature. For information about other options for managing bills and debts, you can ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor. Alternatively, contact our friendly team to discuss your options.
What our customers have said about us
I can’t express my gratitude enough to Rowan. He was so helpful very friendly and extremely professional with the process of getting a car loan for myself. I can’t thank him enough for all he did for me. Thanks Rowan
Tracey D
Very please with the work from Joshua an Katie .. they got my loan approved asap as a mum of 3 an needed a car asap… From start to finish they where fantastic an repayment are manageable… Thanks to zoom car loans for helping me within 10days an got out new family car this morning..
Much appreciation to the team
Misty H
Great service. Quick, friendly and professional! Highly recommend if you’re struggling elsewhere to get finance.
Jessica C
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