Car loans and credit scores: the lowdown

When you’re in the market for a new car and are planning on financing, one important thing you need to keep in mind is how your credit score looks, as this can play a huge part in how reasonable your car finance package is.

What is a credit score?

For the uninitiated, a credit score (or rating) is a number which is calculated based on what’s in your credit report - a summary of your financial responsibility in terms of credit accounts. This number is representative of factors including how much you’ve borrowed before, whether you make all of your payments on time and how many credit checks you’ve put through via applications.

Depending on which credit reporting agency you request your score and report from, this number will fall between 0-1,000 or 0-1,200, which includes five categories you can fall within:

1. Excellent
2. Very good
3. Good
4. Average
5. Below average

The higher your score is, the better your category. And the better your category, the less risky potential lenders will see you which can mean better car finance deals available to you.

You can request your credit report (which will include your credit score) free of charge from Experian or Equifax, which will allow you to review where you’re at.

If you find yourself in the ‘Below average’ category but are in need of a new car, all is not lost! You can either try to improve your credit score before applying or give us a call on 1300 787 288 for a chat and find out what we can do for you.

How can I improve my credit score?

There are a number of different ways for you to give your credit score a boost prior to applying for a car loan, including:

• Review your report for errors

After you receive your credit report, take your time to go through every item within it to ensure there aren’t any inaccuracies like repayments you made not showing, duplicate debt listings and even debt line items you didn’t even apply for (due to fraud, for example).

• Set up direct debit for all bill payments

Missing payments on one or more bills of $150 and over which tick over the 60 day mark can show up as defaults in your credit report and will negatively affect your score for 5 years. Avoid this by setting up automatic payments for all of your ongoing payments like electricity, gas, phone and internet.

• Reduce current credit limits

It kinda makes sense that the more money you have the capacity to use on a credit card, the higher the risk you could be seen as when you’re applying for car finance. As such, lower your credit cards’ limits and you could see an improvement in your credit score.

• Remember that credit checks affect your score

Every single time you apply for products such as credit cards, loans and even post-paid mobile phone accounts, this can negatively affect your credit score (even if you’re not approved). So before applying for that additional credit card, ask yourself whether it’s worth impacting your score.

• Consolidate your debt

If you have a bunch of different loans from a bunch of different lenders (with interest rates all over the shop to boot), bring them all together into one easy-to-manage single monthly repayment from one lender. Not only will this simplify your life, but it may even save you a good deal of money in the process and give you a better chance of getting a car loan.

Want to consolidate your debt? Call us now on 1300 787 288.

What are the different types of car loans available?

There are quite a few different car loan types you can choose between when you’re in the market for a new vehicle. For personal use, these are:

Secured car loans - With a secure car loan, the lender you go with will use your vehicle as a lien against the money you borrow from them. That is, if you fail to make repayments to the loan, they can repossess the vehicle in order to sell it and get some of the money back you owed them.

Personal (unsecured) car loans - As the name suggests and in contrast to a secured car loan, a personal/unsecured car loan is where the lender doesn’t have any claim against your vehicle if you miss repayments. Because of this higher risk, you’ll find the interest rates are higher than a secured car loan.

On the business side of things, you can also consider the following options:

Chattel mortgage - Essentially, a chattel mortgage is very similar to a secured car loan in the fact that while you’re driving the (business-use) vehicle and paying it off in installments, until you’ve paid it off fully it’s owned by the lender.

Finance (car lease) - In this scenario, vehicles which are mainly used for business purposes are purchased by the lender and leased back to you at a certain cost per month (you are, in essence, renting the car). When the lease term ends, you then have the choice of either purchasing the vehicle for a final lump sum amount called the ‘residual’ or ‘balloon’ payment or getting a new lease for a new car.

Novated lease - If your employer offers it, a novated lease can be a great way to save at tax time. Find the car you want and a finance package you’d like to go with, then bring your employer into the mix and all of you sign what’s called a ‘novation agreement’. In this agreement, your employer agrees to make pre-tax payments from your salary towards the vehicle and its running costs, thus lowering your taxable salary which lowers the amount of tax you need to pay at the end of the financial year.

If you’re wondering which of these car loans to go for, give us a call now on 1300 787 288 - we’ll clear things up and help you determine the right one for you.

Discuss your car loan needs with a Stratton Finance team member today

Stratton Finance has been in the finance game for more than a couple of decades, and over this time we’ve helped countless Aussies secure business and personal car finance packages that perfectly suit their needs. Our extensive network of lenders we’ve built up over the 20-plus years means we’re able to scan hundreds of car loan options for you no matter what your financial position might be.

So check out how fantastically low your monthly repayments could be now via our free online car finance quote tool. Once you’ve done that (because we know you’ll love what you see), you can apply online in under 5 minutes or, alternatively, give our friendly team a call on 1300 787 288 and we’ll happily talk and walk you through everything to ensure you’re behind the wheel of your new beast sooner.

Oh, and let’s not forget our friends at carconnect who will tap into their huge Australia-wide pool of car dealerships and find you the hottest prices in the country while also doing all the legwork for you if you’re keen to trade in your current car. They’ll even arrange new vehicle delivery to your home or workplace!