How Car Loan Interest Rates Are Determined in Australia
April 13, 2026
Most people have heard that their credit score matters when applying for a car loan. What they rarely get is a straight answer on what score they actually need, what happens if that score is less than ideal, and whether a low number is a dealbreaker or just a starting point. This article answers all of that in plain English.
TLDR
- There is no single minimum credit score for car loans in Australia; each lender sets its own threshold.
- An Equifax score of 661 or above (the Good band) generally opens access to mainstream lenders and the best rates.
- Scores between 620 and 660 can still secure finance through non-bank lenders, often at a small rate premium.
- Below 600, specialist lenders are the likely path; approval is possible but rates are significantly higher.
- Your credit score is one factor: lenders also weigh your income, employment, existing debts, and the vehicle itself.
- Multiple credit applications leave hard enquiries on your file and can lower your score; a broker pre-approval avoids this.
- Steps like reducing existing debt, correcting credit report errors, and saving a deposit can meaningfully improve your position.
How Credit Scores Work in Australia
Australia has three main credit reporting bureaux: Equifax (scores 0 to 1,200), Experian (0 to 1,000), and illion (0 to 1,000). Each calculates scores using similar underlying data including your repayment history, how many credit applications you have made, existing debt levels, and the length of your credit history, though the exact formulas differ. For car loans specifically, Equifax is the most commonly used bureau. A good starting point before applying for any finance is to understand how credit scores work and where your current score sits across all three bureaux.
The Equifax Score Bands Explained
Here is how Equifax bands translate into practical car loan outcomes in 2026:
Equifax Score | Band | Likely Lender Access | Approximate Rate Range |
853 to 1,200 | Excellent | All mainstream lenders; best available rates | 7% to 8% p.a. |
735 to 852 | Very Good | All mainstream lenders; competitive rates | 7.5% to 9% p.a. |
661 to 734 | Good | Most mainstream and non-bank lenders | 8% to 10% p.a. |
460 to 660 | Average | Non-bank and some specialist lenders | 10% to 18% p.a. |
0 to 459 | Below Average | Specialist lenders only | 18% to 28% p.a. |
Rate ranges are indicative and vary by lender, loan term, and individual borrower profile. The gap between the Good band and the Below Average band can represent tens of thousands of dollars in extra interest over a five to seven year loan term.
Experian and illion: the Other Two Bureaux
Experian and illion use different scoring scales but draw on similar data sets. A car loan lender may check any of the three bureaux, or more than one. Checking your own score is a soft enquiry and does not affect your score at all. Each bureau offers one free credit report per year, so it is worth accessing all three before applying for any finance to confirm your score and check for any errors.
Is There a Minimum Score for Car Loans?
No universal minimum exists across the industry. Individual lenders each set their own policies. Some major banks apply a hard floor of around 600 to 620 and will automatically decline applications below that threshold. Non-bank lenders are generally more flexible, looking at the full application rather than applying a hard cut-off. Specialist lenders may approve applications regardless of score, provided the borrower can demonstrate current stable income and that the repayments are genuinely affordable.
The practical implication: a low credit score does not mean your application will automatically be declined. It does mean fewer lenders will consider you, and those who do will price the additional risk into a higher interest rate.
What Score Gets You the Best Car Loan Rate?
A score of 661 or above, sitting in the Equifax Good band, is generally where borrowers access mainstream lenders and the most competitive rates currently available in the 7% to 10% per annum range. Scores between 620 and 660 can still secure finance through non-bank lenders, typically at a modest premium above mainstream rates.
The financial impact of the rate difference is significant. Consider two borrowers each financing a $25,000 vehicle over five years: one at 9% per annum and one at 20% per annum. The first borrower pays roughly $6,200 in total interest. The second pays over $14,500. That is a gap of more than $8,000 on the same car, created almost entirely by the difference in credit profile and which lender they qualify for. Exploring your car loan options across a broad lender panel, rather than accepting the first offer available, is one of the most effective ways to close that gap.
Can You Get a Car Loan with Bad Credit?
Yes. Specialist lenders in Australia specifically serve borrowers with impaired credit histories, including defaults, missed payments, prior Part IX debt agreements, or discharged bankruptcy. These lenders assess your current financial situation: consistent income, manageable living expenses, and a realistic repayment amount relative to what you earn today. Your past credit history matters less than your present capacity to repay.
The trade-off is a higher interest rate, sometimes a requirement for a deposit, and in some cases a cap on the maximum loan amount. If you have been declined by a bank, that decision reflects one lender’s criteria, not the entire market. There are loans for bad credit available through lenders that are built specifically for borrowers in that position.
What Else Do Lenders Look at Beyond Your Score?
Credit score is one input. Lenders also assess a broader picture that includes:
- Employment and income: Full-time employment with a stable income is viewed most favourably. Casual and self-employed borrowers may need to provide additional documentation. Low-doc loan options exist for those who cannot meet standard income verification requirements.
- Existing debts and credit card limits: Even unused credit card limits count as potential liability from a lender’s perspective, because they could be drawn on at any time. Paying down balances and reducing limits before applying can improve your borrowing position.
- Living expenses: Lenders apply a serviceability test to confirm that repayments are affordable given your income and regular outgoings.
- Residential stability: How long you have lived at your current address is a minor but noted factor. Frequent moves can raise questions about stability.
- The vehicle: The car’s age, make, model, and value all factor in, because it serves as the security for the loan. Most lenders apply age caps; vehicles that are too old or too high in kilometres may not meet their asset criteria.
- Loan-to-value ratio: A deposit reduces the amount you need to borrow relative to the car’s value. A lower LVR reduces lender risk and can partially offset a lower credit score.
How Credit Enquiries Can Affect Your Score
Every time a lender formally assesses a credit application, a hard enquiry is recorded on your credit file. That enquiry is visible to other lenders and can temporarily reduce your credit score. If you apply to five different lenders independently in a short period, each one leaves a mark, and the accumulation of marks signals active credit-seeking behaviour, which lenders read as a potential risk signal.
A soft enquiry, such as checking your own score or a broker running a pre-approval check across their lender panel, does not affect your score at all. Working with a broker who can explore pre-approval options across multiple lenders through a single enquiry means you can compare what is genuinely available to you without any negative impact on your credit file.
Steps to Improve Your Credit Before Applying
Even incremental improvements to a credit score can shift a borrower from one rate band to the next. Practical steps worth taking before applying:
- Obtain a free credit report from each of the three bureaux and dispute any errors or inaccuracies, as mistakes are more common than most people expect.
- Pay down existing debts, starting with those with the highest interest rates, and reduce unused credit card limits.
- Avoid making any new credit applications in the three to six months before applying for a car loan.
- Save a deposit to reduce the loan amount and LVR. Even a modest deposit demonstrates financial discipline to lenders.
- Choose a vehicle whose age and value sit comfortably within mainstream lender criteria, which widens your lender options.
- Consider the timing: if your credit report shows a default that is close to the seven-year reporting period, waiting until it drops off may significantly improve your options.
Ready to Explore Your Car Loan Options?
Whether your credit score is strong, somewhere in the middle, or not where you would like it to be, there are car loan options available in Australia in 2026. The range of lenders and products is broader than most people realise, and the right fit depends on your full financial picture, not just a single number.
Thor Finance works with 45+ lenders across the full credit spectrum. The pre-approval process does not affect your credit score, so you can find out where you stand and what you qualify for before committing to anything. Get in touch to start the conversation.
