Your credit score undeniably plays a significant role in various facets of your financial life. Its influence extends to obtaining new credit cards, securing mortgages, and approval for auto loans.
If you’re contemplating purchasing a new vehicle, understanding your credit score and its potential impact on the conditions of your auto loan is crucial.
In this article, we delve into the concept of credit scores and take a quick look at their effect on securing car financing.
What is a credit score?
A credit score, a numerical representation of your creditworthiness, is used by lenders to gauge the risk associated with lending to you. When applying for a car loan, your unique credit score will be examined to assess the likelihood of you repaying the loan. A good credit score suggests a high probability of timely repayments, while a low or bad score could indicate past difficulties with debt repayments, making lenders wary.
Credit scores, typically ranging from 0 to 1000, are calculated based on the information in your credit report. A higher score represents a lower risk to lenders. In Australia, the average credit score is 734, which falls into the ‘great’ category, enabling you to secure car financing at competitive rates.
There are three main credit bureaus in Australia – illion, Equifax and Experian – each of these bureaus determines your credit score by collecting different information about consumers.
Each bureau has a different system for credit ratings and because of this, your credit score might be slightly different for each of the three companies.
How does my credit score impact my interest rate?
Your credit score serves as a measure of your reliability in repaying borrowed money. A high credit score signifies financial responsibility, leading lenders to trust you with their money, often resulting in lower interest rates and subsequently, reduced monthly payments.
Conversely, a poor credit score may result in a lender charging you a higher interest rate to offset the risk associated with lending to someone with less financial stability. However, even with a low credit score, car loan eligibility is still possible through lenders who specialize in providing finance to customers with less-than-perfect credit.
How can credit scores impact car financing?
Your credit score plays a pretty important role in the approval, conditions, and interest rate of your car loan application.
Here’s the breakdown: Having a good credit score (above 625) makes lenders more inclined to offer superior interest rates and terms on your loan. On the other hand, a bad credit score (below 550) may lead to less favourable deals, with lenders potentially imposing higher interest rates or additional fees.
This is true for both personal and business car finance. In assessing your eligibility for a business car loan and the corresponding interest rate, lenders evaluate your personal credit score alongside the creditworthiness of your business. Maintaining good credit across personal and business finances is crucial to securing the most advantageous deals available.
What’s the minimum credit score I need to get a car loan?
There is no fixed minimum credit score for car loans in Australia. However, your credit score is important to lenders who use it to determine the risk of providing a loan to you. If your score is lower than what they require, they might charge you a higher rate of interest or reject your application altogether.
For your reference here are the different credit score ranges provided by each of the 3 main reporting agencies used by lenders.
Experian Score Range |
Illion Score Range |
Equifax Score Range |
0 – 1000 |
0-1000 |
0 -1200 |
Below average: 0-549. |
Low score: 1-299. |
Below average: 0-505. |
Fair: 550-624. |
Room to improve: 300-499. |
Average: 506-665. |
Good: 625-699. |
Average: 500-699 |
Good: 666-755. |
Very good: 700-799. |
Great: 700-799. |
Very good: 756-840. |
Excellent: 800-1,000 |
Excellent: 800-1,000 |
Excellent: 841-1,200. |
Can I get a car loan with a credit score under 600?
A credit score of under 600 is considered below average to fair (depending upon the number), while a credit score between 550-624 is considered adequate to most lenders. A score between 300-549 may impact the number of lenders that would be willing to provide you with a car loan. You may find that the lenders place more conditions on the car loan, such as requiring you to have a larger deposit or giving you a higher interest rate.
Find out if you’ll get approved before you even apply
If you are seriously thinking about getting a car loan, the best first step is talking to a finance broker. They can help determine how likely you are to get approved for some personal loans and can help you find the best rates.
