Bad Credit Car Loans

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Shane Ford Shane Ford
General Manager

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If you’re looking to finance a new or used vehicle with a car loan, but have poor credit history, then there are still options available to you.


Bad credit car loans are designed for individuals who have made mistakes in the past with their credit file, but have the ability to meet repayments on a future car loan.


Below, you’ll find everything you need to know about car loans for people with bad credit in NZ.


What is a bad credit car loan?


A bad credit car loan - also known as second-chance car finance - is specifically designed to help people with a bad credit rating, allowing them to finance the purchase of a vehicle.


Typically, they may often have a higher interest rate than regular loans, and may also include higher initial or monthly fees.


Interest Rates and Fees for a Bad Credit Car Loan

Car Loan Type Standard Car Loan Bad Credit Car Loan
Interest Rates 10% 16% - 29%
Fees $250.00 $1,000

What is the difference between a bad credit car loan and a standard car loan?


Other than higher rates of interest, the main difference between a bad credit car loan and a traditional car loan is that your loan may require some equity by way of a deposit or a vehicle to trade in or a strong guarantor.


This is because a poor credit history can make you a higher risk to lenders, and where a standard car loan can use a guarantor to potentially get a better interest rate, a bad credit car loan may require a guarantor simply for loan security.


What are the different types of bad credit?


When lenders are deciding whether or not to approve a bad credit car loan, they will look at the number and severity of the defaults on your credit file. These may include:


  • Current defaults listed on your credit report (paid or unpaid) e.g. utility or gym memberships
  • Financial defaults, which are weighted heavier than other defaults, e.g. credit card or personal loan
  • Insolvencies - e.g. bankruptcy, No Asset Procedures (NAP) or Summary Instalment Orders (SIO).

Are interest rates higher for second-chance car finance?


Interest rates - and loan establishment fees - will often be much higher for a bad credit car loan than a standard car loan. You’re likely to expect interest rates ranging between 16% and 29%, and establishment fees will vary between lenders.


Bad Credit Car Loan Lender Rate Comparison Table

- Lender 1 Lender 2 Lender 3
$15,000.00 5.19% 10 $18,995.00
$15,000.00 18.5% 4 $22,201.00

How can I get the best interest rate on my bad credit car loan?


The easiest way to reduce interest rates and get the best rate for your bad credit car loan is to have any and all defaults paid in full. Lenders will assess your application based on your level of risk, and clearing your original debts shows you are more likely to repay your new loan in full and on time.


If you have no defaults on your credit file within the past three to four years, you’ll be in an even better position. This illustrates to lenders that although you made a mistake previously, you are now in a much better place to manage and repay any future loans.


What are the minimum and maximum amounts I can borrow?


The minimum amount you can apply for through Vehicle Loans is NZ$5,000.00. This is the lowest amount you can borrow, regardless of good or bad credit.


Minimum and Maximum Borrowing Amounts for Bad Credit Car Loans


- Minimum Amount Maximum Amount
Bad Credit Car Loan Amount NZ$5,000 NZ$30,000

Do I qualify for a bad credit car loan?


You can qualify for a bad credit car loan if you are:

  • 18 years of age or older; and
  • A New Zealand citizen or holding a work permit or permanent resident (PR); and
  • currently employed or have regular income; and
  • holding a minimum of a New Zealand Learner Licence; and
  • have been discharged from bankruptcy or insolvency for a minimum of 12 months.

When applying for a bad credit car loan, you will still need to supply all documentation as you normally would when applying for a car loan, such as:

  • photo identification; and
  • proof of address; and
  • proof of income by way of electronic bank statements.

What do I need to do to apply for a bad credit car loan?


If you’re interested in seeing if you can apply for a second-chance car loan, Vehicle Loans can conduct a quick-and-easy No Credit Check Pre-Assessment. Simply call 0800 651 480 now and speak to one of our trusted vehicle finance brokers.


Our team can advise on your eligibility for a bad credit car loan without needing to submit to a credit check.


The other crucial factor to consider for your application is whether you can make an initial deposit on your vehicle. Generally upwards of 20 per cent due to the level of risk presented to the lender is a great starting point.


How long does it take to approve a bad credit car loan?


Once we have all the required information we need from you, and our brokers are satisfied that you meet the criteria for a bad credit car loan, Vehicle Loans can typically have an approval completed within an hour.


I have a few defaults on my credit file, can I still get a bad credit loan?


There are limitations to what lenders will accept when deciding on an approval. Lenders will look at the number of defaults on your credit history, and assess the level of risk in relation to their severity - e.g. defaults on a mortgage or previous car loan will be deemed higher risk than a small Afterpay purchase or unpaid telco default.


Lenders will also consider the value of each default, and total value of all defaults. Typically, we are able to gain approval for second-chance car loans with clients who have two or three defaults under NZ$3,000.00.


Can I get a bad credit car loan if I have been bankrupt or insolvent?


Yes, but your success will depend on your level of previous debt, and your current financial stability. We cannot fund individuals who are currently bankrupt or insolvent - you will need to have been discharged for a minimum of 12 months.


If you are currently finishing payment of a Summary Installment Order (SIO) or in a No Asset Procedure (NAP), you may be required to wait anywhere up to two years depending on the level of previous debt you have incurred.


Due to your previous financial difficulties, you present a greater level of risk to lenders, on occasion they may also request a GPS tracking system installed in the vehicle.


Although this will incur installation, setup, and monthly monitoring costs, you will be notified of these conditions before agreeing to the loan, with the ongoing costs included in the total loan amount and distributed throughout your scheduled repayments.


Will a bad credit car loan damage my credit rating?


Every credit check can potentially lower an individual’s credit rating - if you’re already dealing with poor credit history, then it’s important not to rush into applying for car finance with multiple lenders.


For example, John has three defaults on his credit file, but nothing new for the past three years.


Although John has poor credit history, he has made attempts to repay his previous defaults and is now considering taking out a bad credit car loan to finance a new vehicle.


John applies online with a number of lenders, but fails to properly read the terms and conditions around his application. Without meaning to, John has consented to multiple credit checks on his credit file, which lowers his credit score and leads to him consequently being denied finance by his bank.


In this instance, working with a broker means you have someone on your side who can advocate on your behalf with lenders, and is capable at looking beyond your bad credit history and toward your positive financial future.

This is just part of the reason we offer a No Credit Check Pre-Assessment, to ensure anyone with bad credit can still get the advice they need without any risk to their credit score.

What kind of cars can I purchase with a bad credit car loan?


The kind of vehicles you can purchase with a bad credit car loan are the same as you would be able to with a standard car loan. Once you have been approved for your loan, you can use the funds to purchase a car through a dealer, a private sale such as on TradeMe, or at auction.

What protection is available for my car loan through a broker?


When you apply for a bad credit car loan with one of our brokers at Vehicle Loans, we’ll offer additional protection for yourself and your vehicle, such as:


  • Mechanical warranty with Mechanical Breakdown Insurance - Mechanical Breakdown Insurance covers the cost of repairing mechanical or electrical parts as a result of a sudden and unforeseen failure and breakdown that occurs during normal use in New Zealand.
  • Guaranteed asset protection - Guaranteed Asset Protection Insurance protects you against losses that may occur when your vehicle is declared a total loss, and as a result the total loss settlement amount paid by your vehicle insurer is less than the outstanding amount you owe to your financier for your vehicle loan.
  • Payment protection - Payment Protection Insurance protects your loan repayments if you suffer an insured event - such as redundancy, severe illness, or disability.

Even if you’re applying for second-chance car finance, it’s still worth considering extra protection, in case you experience any mechanical faults with the vehicle, or if you experience an accident or are made redundant.


Ask our brokers to discuss the most suitable options available to you.


Do I have to pay anything to apply for second-hand car finance?


There is no fee to apply for finance, even if you have bad credit.

Vehicle Loans is paid a commission or brokerage fee for processing the application and settlement of a car finance agreement - this is paid by the lenders.

Is a bad credit car loan the right option for me?


Vehicle Loans operates under the Credit Contracts and Consumer Finance Act (CCCFA) and all finance arrangements provided by Vehicle Loans are compliant with this Act and follow the guidelines under the Responsible Lending Code advised by the Ministry of Consumer Affairs.


Our brokers will only advocate for individuals who are dependable and prove they can act responsibly despite poor credit history.


We will only suggest a second-chance car loan if it’s a suitable option for your situation. As the borrower, you will need to ensure you are comfortable with the loan amount and your ability to meet your repayment obligations.


I need to apply for a bad credit car loan in rural NZ


Vehicle Loans serves clients all across New Zealand, not just in major cities like Auckland, Hamilton, Tauranga or Christchurch.


We can assist with bad credit car loan applications for people living anywhere from Whangarei to Invercargill, and best of all, you can easily apply online if you need to.


How do I apply for a bad credit car loan with Vehicle Loans?


If you need to apply for a bad credit car loan, you can contact our team over the phone or apply online.


If you’d like to speak to one of our team about your situation, you can call us free on 0800 651 480, and one of our experienced brokers will run through your application and finance solutions available to you.