Car loans and how payday loans affect your credit score

Rapid Finance on 10 March 2022

Confused about car loans? Wondering if a payday loan will harm your chances of getting a new or used car finance? Rapid Finance have almost 20 years of financial experience and love helping customers successfully navigate the world of car loans.

Whether you’ve been declared bankrupt, only have short-term employment or have used payday loans in the past, Rapid Finance may be able to  help. We look at the bigger picture (Eg Overall profile), when it comes to your financial situation — without making judgements that could hold you back.

What is a payday loan?

A payday loan is just what it sounds like. It’s a short-term, unsecured personal loan that can give your cashflow a boost while you wait to get paid by your employer. Payday loans range from $300 to $2,000. Typically, there is no interest charged on a payday loan, but lenders make their money by charging expensive fees like the following:

  • An establishment fee: up to 20% of the amount borrowed

  • A monthly fee: up to 4% of the amount borrowed

  • Missed payment fees: up to $35

  • Default fee: up to two times the borrowed amount

  • Enforcement fee: amount varies

Car loans and how pay day loans affect your credit score

Payday loans have a bad reputation, but when managed properly then can act as a stopgap when you have immediate or emergency costs to cover, such as medical bills or funeral expenses.

Payday loans have morphed into loans that don’t just act as a short-term bridge but continue for months or even years — often costing consumers extortionate amounts in fees. Usually pay  days loans have an effective interest rate of up to 48% when you consider all the fees and interest rate, if interets is being charged.

Are payday loans bad?

Payday loans were originally created as micro loans (Small amount credit contracts). For that reason, they’re typically approved very quickly with looser lending criteria, which can in turn raise red flags for future loan approvals. Some lenders may also interpret the repeated use of payday loans as a sign of poor financial management. (Eg - The customer can not manage their money and are constantly looking for short term expensive loans to survive)

The other downside of payday loans is that they aren’t classed as referable credit, so even if you make payments on time and never default, it won’t help you get another loan. In other words, even if you manage payday loans well, they won’t be seen as a positive thing for your credit score. A lot of customers believe they will, but this is not the case.

Can payday loans stop you from getting car finance?

Because payday loans can affect your credit score, when you apply for vehicle finance, the payday loan will generally show up on your report. Lenders will be able to see how many credit enquiries you have made, the type of credit you had approved (or not), the date of application, the amount you borrowed and details of any missed payments and defaults. For some bad credit car loans, bank statements or a transaction list from your bank is required. Pay day loans will show up on your statements, if you are making payments on that type of facility.

Although payday loans can affect your credit score, it shouldn’t stop you from getting approved for a car loan.

Bad credit car loans

At Rapid Finance, we’ve helped thousands of customers in obtaining car loans, even when their credit history isn’t excellent. Bad credit car loans are designed for people who might have difficulty getting a loan due to poor credit history or a low credit score.

So, how do we do it? Rapid Finance offers solutions-based finance. While other brokers sell you the loan they want to sell you, we find out what will work best for you and your situation. Using a comprehensive assessment, we’ll find a finance solution that best matches your unique goals and circumstances — even if you don’t have a perfect credit history.

If your credit score is less than perfect, call Rapid Finance on 1300 467 274 to see if we can help you find a suitable bad credit car loan.


Give us a call on 1300 467 274 or apply online today.