How does a debt agreement affect your chances of getting a car loan?

How does a debt agreement affect your chances of getting a car loan?

If you’re looking to get a car loan but you’re worried you may not qualify because of current or previous bad credit, you may be pleasantly surprised to hear that it’s not all bad news.

While it’s typically recommended that you don’t take on any more debt when you have a bad credit history, life isn’t always that black and white. You may find yourself in a situation where you need to replace your car or purchase a one for the first time due to a new job or family obligations. Or perhaps you’ve been unlucky and have experienced car theft or were in a recent car accident.

Whatever the case, it’s important to know that it’s not impossible to make your car dreams a reality.

Read on to learn more about debt agreements and how they come into play when you’re trying to apply for a car loan. 

First, what is a debt agreement?

A debt agreement is first and foremost a legally binding agreement between you and your creditors. It allows you to repay one fixed weekly, fortnightly or monthly amount based on what you can afford – not what is owed. It will also freeze your debts to stop any further interest charges or fees from accruing.

If you fulfill your agreement, your creditors will clear the remaining balance of the listed debt, so you can save considerably compared to paying your debts in full over the same period of time.

While it’s a fantastic option for many, it does utilise part IX of the Bankruptcy Act so it’s important to note that if may affect your credit for up to five years (or until the it’s completed, whichever is longer).

Now this is by no means a death sentence to your credit history nor does it mean that you absolutely can’t get access to credit during this time, for instance for the sake of buying a car. There are many specialised lenders such as Alpha Car Finance on the market nowadays that are willing to work with Australians with a less than perfect credit history.

Can I get a car loan if I have bad credit?

You can absolutely still apply for a car loan, however it’s up to each lender and their leasing requirements. While it can be a bit harder to secure a car loan, that doesn’t mean it’s impossible. If you are consistently making your debt repayments, it’s a show of good faith to any lender that you’re able to stick to a payment arrangement. It’s also helpful to be able to show good rental or mortgage history, paid employment history and good banking conduct, i.e. no recent negative balances, when you begin your application process.

What if I’ve completed my debt agreement?

Your chances of getting a car loan are even better once you’ve completed your debt agreement. It’s a good sign to any lender that you were able to fulfill your entire agreement and stick to your payment arrangements on time. While some lenders require you to have a finalised agreement for at least 12 months prior to your application, they may be willing to make an exception based on other financial factors. These include a good rental or mortgage history, paid employment history, good banking conduct and a surplus of income after all of your expenses have been taken into account.

Don’t forget about your budget

If you’re thinking about taking on a car loan in addition to a debt agreement or even after you’ve completed your agreement, it’s a good idea to take a look at your budget first to make sure you have adequate room for a monthly car payment. If you’ve been approved for a car loan, make sure you have made any necessary adjustments to your budget so that you can comfortably afford your current expenses along with your new car repayment. This is also a great time to re-asses your spending habits, and decide if there’s anything you can afford to do without.

Remember, all hope is not lost if you have current or past insolvency and you’re in need of car financing. If you can show that you’ve been making your repayments consistently and have established good financial habits, chances are you’ll be able to find a car lender that’s willing to work with you. Just remember to assess your budget carefully and review all of your options before taking on any additional debt.

If you have a debt agreement and you need help deciding whether a car loan is the right choice for you, Debt Busters can help. Give our friendly team a call on 1 300 368 322 or visit https://debtbusters.com.au/ for more information.