Do Auto Loans Build Credit? Discover the Truth (2026)
Struggling to boost your credit score? Learn how auto loans can be your ticket to improved credit. Get the facts and take control today.
In today's fast-paced world, building a solid credit history is crucial for financial success. Many Australians wonder whether taking out an auto loan can help build their credit. If you're considering purchasing a car and are keen to improve your credit score, this blog will provide you with all the information you need to make an informed decision.
Understanding Auto Loans and Credit Building
Auto loans, like other forms of credit, can impact your credit score. When you take out an auto loan, you're entering into a legal agreement to borrow a certain amount of money to purchase a vehicle. The lender provides the funds, and you agree to repay the loan with interest over a specified period.
Your credit score is influenced by several factors, including your payment history, the amount you owe, the length of your credit history, new credit, and the types of credit you use. By managing an auto loan responsibly, you can positively affect these factors and build your credit score over time.
Current Auto Loan Rates, Requirements, and Options
As of 2026, the Australian auto loan market offers a variety of options to suit different financial situations. Interest rates can vary widely depending on your credit score, the lender, and the loan term. Typical rates range from 6.49% to 12% for borrowers with good to excellent credit scores.
Eligibility criteria for auto loans include:
- Being at least 18 years old
- Having a regular source of income
- A valid driver's licence
- Good credit history (though options exist for those with less-than-perfect credit)
With over 83 lenders on our panel at Esteb and Co, you have access to a wide array of auto loan products, making it easier to find a loan that aligns with your financial goals.
| Lender | Interest Rate | Loan Term |
|---|---|---|
| Lender A | 6.49% | 1-5 years |
| Lender B | 8.25% | 1-7 years |
| Lender C | 12% | 1-5 years |
Steps to Use an Auto Loan to Build Credit
Building credit with an auto loan requires responsible financial behaviour. Follow these steps to ensure your auto loan positively impacts your credit score:
- Review Your Credit Report: Before applying for an auto loan, check your credit report for errors and fix any inaccuracies.
- Shop Around: Compare offers from different lenders to ensure you secure the best interest rate and terms. Esteb and Co can help by leveraging our extensive network of 83+ lenders.
- Make Timely Payments: Your payment history significantly affects your credit score. Set up reminders or automatic payments to ensure you never miss a due date.
- Keep Loan Term Reasonable: Opt for a loan term that results in manageable monthly payments. This minimises the risk of defaulting.
- Monitor Your Credit: Regularly check your credit score to track how your loan affects it and make adjustments as needed.
Expert Tips and Considerations
When using an auto loan to build credit, consider the following expert tips:
- Down Payment: A larger down payment can reduce your loan amount, resulting in lower monthly payments and interest costs.
- Avoid Late Payments: Late payments can severely damage your credit score, so prioritise punctuality.
- Refinancing Options: If your credit improves, consider refinancing your auto loan for better rates.
- Debt-to-Income Ratio: Keep this ratio low by not overextending your finances with excessive borrowing.
Frequently Asked Questions
- Can an auto loan hurt my credit score?
Yes, if you miss payments or default on the loan, your credit score can be negatively impacted. - How long does it take for an auto loan to improve my credit score?
It varies, but consistent, on-time payments over 6-12 months can start showing improvement. - Is it possible to get an auto loan with bad credit?
Yes, some lenders specialise in loans for individuals with poor credit. However, rates may be higher. - Will paying off my auto loan early improve my credit score?
Paying off the loan early can save on interest but won't necessarily boost your score instantly. - Do all lenders report to credit bureaus?
Most reputable lenders do, but it's essential to confirm this before signing a loan agreement.
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With direct experience helping Australians secure home loans, car finance, and business funding, Ricky founded Esteb and Co to bring transparency and technology to mortgage broking.