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Does applying for a car loan affect my credit score?
February 22, 2021●
4 minute read●
If you are financing a new car, it is often not feasible to save thousands of dollars to purchase it outright. At most times, it is more realistic to use a car loan. If you’re considering applying for a car loan, you may be wondering whether this will affect your credit score. Your credit score is extremely important when it comes to accessing car finance. If you have a poor credit score, this will likely make securing a car loan quite challenging. If you have a good credit score, you will have more options available and room to negotiate with lenders.
What is a credit score?
First and foremost, a credit score is essentially a report card for your creditworthiness. If you pay all of your bills and debts on-time, without defaults or missed payments, chances are you will have a good credit score. However, if you have defaulted on loans, missed repayments, filed for a Part IX debt agreement or declared bankruptcy at any point in the last 5 to 7 years, this will show up on your credit report. These factors will often result in bad credit.
How do credit checks impact your credit score?
Every time you apply for credit, lenders will check your credit score. These searches will show up on your credit report in the form of a credit enquiry. This will not necessarily impact your credit score; however, if you have applied for multiple loans in a short period of time, this will likely cause a dip in your score. This is because it indicates to lenders that you may be in financial stress, which warns them to not lend to you.
So, applying for a car loan in itself will not impact your credit score. But if you have applied for multiple car loans through different lenders, this will likely negatively influence your credit score.
How to minimise impacts to your credit report
There are a few things you can do to reduce impacts to your credit report.
Check your credit score
Before you apply for a loan, it’s important to know what your credit score is. It is likely that the worse your credit score is, the higher interest rates you will need to pay on top of your loan. It’s important to know what your credit score is because, if it is good, you will have more room to negotiate your loan terms. This will give you a better idea of your loan options as well, so you can apply through an appropriate lender that will be more likely to approve your application.
Another important reason to check your credit report is to look for any errors. Sometimes, credit reports contain incorrect information. If you find any errors on your credit report, contact a credit bureau immediately to rectify this. This will likely improve your credit, and therefore improve your chances of being approved for your loan.
Avoid applying for multiple loans at once
Applying for multiple loans at once indicates to lenders that you are in a poor financial situation. This will make it more difficult to be approved for the loans you are applying for. It’s better to apply for one loan through one lender and, if you happen to be rejected, wait a few months before applying for another loan. To avoid rejection from one loan, there are a few things you can do:
- Ensure you meet the lender’s eligibility criteria
- Only apply for what you can afford
- If you have bad credit, apply through an alternative lender that specialises in bad credit loans – traditional lenders like banks are usually very strict with their eligibility requirements but alternative lenders, like Jacaranda Finance, are often more lenient
Pay your loan repayments on time
Missing payments or defaulting on loans negatively impacts your credit score. To ensure your credit score remains intact, it’s critical to repay your credit cards and loan payments on time. A few tips to manage your debts:
- Set up a budget and stick to it
- Consider a consolidation loan
- Cut down unnecessary spending
- Avoid incurring more debt
- Build a savings buffer (emergency fund)
Car loans for bad credit
If you have bad credit, you may need to apply for bad credit car loans. Jacaranda Finance offers bad credit car loans up to $35,000 for people with bad credit scores. We offer flexible repayment terms, from 1 to 4 years, to avoid putting further strain on your financial situation.
We can provide loans for bad credit because we take a more inclusive approach to lending. We conduct thorough assessments on all of our applicants and, if we believe they can repay their loan comfortably, we can approve loans even with bad credit.
Car loans with Jacaranda
Jacaranda Finance offers car loans from $5,000 to $35,000 for both new and used cars. Our repayment terms range from 1 to 4 years depending on how much you wish to borrow. We are a 100% online lender, which means that from application to approval, everything is done online. Our application process is completely simple and often takes less than 8 minutes to complete. We will endeavour to get back to you with a car loan application outcome within the same day that you apply (if you apply within business hours – all applications are subject to assessment).
To make your car loan approval time as fast as possible, ensure you have the documents you need for a car loan handy when you apply. If you’re unsure which car loan terms you would like to apply for, popular car loan terms range from 2 to 7 years. If you need information about car loans and how they work in Australia, we can help with that.
Written by Jacaranda Team