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

By: Louise Mosqueda0 comments

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

While taking on more debt when you have a bad credit history isn’t necessarily a good idea, 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 a legally binding arrangement between you and your creditors. It allows you to repay one fixed amount (weekly, fortnightly or monthly) 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 fulfil your agreement, your creditors will clear the remaining balance of the registered debt, so you can save considerably compared to paying your debts in full over the same period.

While it’s a fantastic option for many, it does utilise part IX of the Bankruptcy Act so it’s important to note that it may affect your credit for up to five years (or until 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 example buying a car. Many specialised lenders such as Alpha Finance 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 still apply for a car loan; however, it’s up to each lender and their lending 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 and demonstrates that you’re able to stick to a payment arrangement. It’s also helpful to be able to show good rental or mortgage history, in addition to a history of paid employment and good banking conduct, i.e. no 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 fulfil your entire obligation and stick to your payment arrangements. 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 good rental or mortgage history, paid employment history, good banking conduct and a surplus of income after consideration of all of your expenses.

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 obligations, 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 have a car loan approval, make the necessary adjustments to your budget so that you can comfortably afford your current expenses along with your new car repayment. It is also a great time to decide if there’s anything you can live without and reassess your spending habits.

Remember, if you have current or past insolvency and you’re in need of car financing, there are options. 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 need a car, Alpha Finance can help. Give our friendly team a call on 1300 257 426 for more information.

 

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