There are only a few providers in the market that provide no credit check car loans in Australia, meaning they will not run a check on your credit file when you submit your application. This can be useful for those who need a car loan with a poor credit history.
This could show that you are now more financially stable and able to repay a car loan. This type of car finance car be more costly, but if there is no other option, you could use them as a stepping stone.
For example, a no credit check car loan may assist in showing other lenders that you have improved your situation by making your repayments on time for over 12 months.
So how do no credit check car loans work?
No credit check car loans usually have higher interest rates
These types of car loans are the most costly, with usually very high-interest rates as well as high establishment fees and early exit fees. Some of these providers will also not give you the full freedom to choose the vehicle you want and often you end up paying substantially more for the car than you normally would.
You could expect interest rates to be as high as 30%.
They may require large deposits
You may also find that some of the conditions imposed on qualifying for the no credit check car loan may require a certain deposit to minimise the risk.
There has been some media attention with some of these kinds of arrangements, where the provider will get around certain laws by selling the client a car that is worth $2,000 wholesale and their sale price would be around $18,000 and provide an ‘interest free’ car loan, where the client would need to put down a $2,000 deposit to qualify for this loan.
As you can see they have priced the interest into the sale price of the car to offer an interest free car loan, to try and create a loophole in the system.
They then require your down payment being the wholesale price they paid for the car themselves, taking all the risk out of the equation and every payment the client makes is then the profit margin, so if the client with poor credit does not pay any repayments, they have only really lost their time and recovered their main costs by requesting the deposit at the beginning.
The car is used as security
Because lenders consider no credit check loans as high risk, many will require you to list your car as collateral for the loan.
This means, if you fall behind on your repayments, the vehicle could be repossessed.
Longer loan terms
Many no credit check car loans have loan terms in excess of five years.
When you combine this with the notoriously high interest rates that apply to such loans, when you reach the end of your term, you may still have to pay the outstanding amount of your loan.
This could ultimately exceed the value of your car if you wanted to eventually resell it.
Make sure to check the lender’s reputation
It’s important to make sure the lender you choose has an Australian Credit Licence (ACL).
You should also research and read independent online reviews from other people who have previously used the lender, and carefully read the loan terms and conditions to make sure there aren’t hidden fees.
Alternatives to no credit check car loans
No credit car loans aren’t the only option for those with a bad credit rating. Many lenders provide financing options to borrowers with bad credit, however they just expect them to conduct a credit history search to determine what sort of loan you are eligible for.
Finally, you could also consider waiting until your credit score improves.
If you’re ready to apply for a car loan, get in touch with us today to see if we can assist.