How Much Can I Borrow With Bad Credit?
Finding out how much you can borrow with bad credit is crucial when planning for a new car and the budget for it.
For example, if you need (or want) a specific car that costs a lot but you can only borrow a certain amount, it can cause problems.
On the plus side, there are dozens of lenders (eg. banks) out there willing to help people with bad credit.
On the other hand, bad credit can knock out a huge number of lenders, leaving only a few options available.
You can get a car loan even with bad credit
There are many ways to get a car loan with bad credit, however, you must be able to prove certain things when you apply for one.
Lenders take your credit history and repayment capacity into account before offering you a loan on bad credit. Basically, they want to see that you were able to keep on top of your finances in the past and have the current income surplus to make repayments into the future.
Review your credit report and resolve any errors you find. Lenders will take a look at your credit history (as detailed in your credit report) before making an offer. It is important that all the information is correct.
How much can I borrow with bad credit?
This is a common question and the answer depends on several factors. Typically, the amount you can borrow is determined by two things:
Your credit score: a score located on a credit report (often out of 1,200). The higher, the better.
Your surplus funds for new loan repayments: this means enough money left over each pay cycle to make the repayments and still live the life you currently live.
If you’re receiving Centrelink payments, there can be caps (limits). Furthermore, only some forms of Centrelink payments can be used for car loans.
***Youth Allowance and Job Seeker can’t be used for car loans.
Lenders often request an applicant’s bank statements to get a snapshot of their lifestyle as well as their spending habits and where their money is going (and coming from).
An applicant who gambles regularly, has a lot of expenses like eating out, streaming subscriptions, high bills, etc and doesn’t have much money left over after each pay cycle will have less borrowing power than someone who lives less extravagantly.
An applicant who is careful with money, doesn’t make large cash withdrawals and generally saves money each pay cycle is likely to have high borrowing power.
That being said, it can get more complicated
Most lenders have their own minimum expense calculators which tell them how much you “should” need each month. For example, a couple with 3 kids living in an urban area has higher living expenses than a single person living in an outer suburban area.
If your living expenses are too low, it can raise questions as to how and if you’re receiving additional income or support (eg. cash). This isn’t always a problem, but may affect the amount you can borrow.
It can be a bit of a balancing act so use a loan calculator to figure out repayments suited to your circumstances.
Better yet, and for a more accurate idea, talk to the Loans For People With Bad Credit team – we’ll be able to tell you how much you can borrow based on your circumstances.
Interest rates for bad credit car loans typically vary from 10 to 20% here in Australia. If your current financial situation is somewhat stable, you can get lower interest on your car loan.
I can change my spending habits
If your bank statements show that you spend a lot on takeaway food and entertainment while making regular large cash withdrawals, it’s not a matter of simply telling a lender that you’ll “cut back”.
You’ll have to prove it.
To do this, you’ll typically need three months of clean bank statements which show you live well within your means and have surplus for new loan repayments.
Income is crucial in determining your borrow amount. Of course, the longer you’ve been with your employer and the more stable your income is, the better.
This means that casual employment can be tricky and you’ll generally need several months behind you showing consistent hours with the same employer.
Contract, freelance and commission work can also help when determining your borrow amount so make sure to keep records of all income you receive.
If your income is inconsistent or cash in hand or generally not under any contract, it can be difficult to use for car loan repayments.
There’s no quick answer to “how much can I borrow with bad credit?”
Everyone’s history and circumstances are different and that means different borrow amounts. But you can get your ducks in a row:
In the months leading up to getting a car loan
- Reduce current debts as much as you can and try to save a little
- Ensure your employment is as stable as possible
- Reduce any unnecessary expenses like subscriptions that you don’t use / don’t need
- Avoid gambling, cash withdrawals and frivolous spending
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