Car Loans – Boost Credit Score or Risk It? (2026)

Are you considering taking out a car loan and wondering if it could positively impact your credit score? Understanding the relationship between car loans and credit ratings can be essential for making informed financial decisions. Whether you're looking to build your credit history or improve your current score, this comprehensive guide will help you navigate the nuances of car loans and credit scores in Australia.

Understanding Car Loans and Credit Scores

Car loans are a type of instalment credit that can potentially impact your credit score significantly. In Australia, your credit score is a numerical representation of your creditworthiness, ranging from 0 to 1,200, with higher scores indicating better credit health. When you take out a car loan, your repayment behaviour is reported to credit bureaus, influencing your credit score over time.

Credit scores are affected by various factors, including payment history, credit enquiries, the length of credit history, and the types of credit in use. A car loan can improve your credit score if managed wisely, as it adds to your credit mix and provides an opportunity to demonstrate responsible credit behaviour.

Current Car Loan Rates and Requirements

As of 2026, the Australian car loan market offers a diverse range of interest rates and options. The rates typically range from 6.49% to 12%, depending on factors like your credit score, loan term, and the lender's criteria. It's crucial to compare different loan options to find the best deal that suits your financial situation.

Lender	Interest Rate Range	Eligibility Criteria
Lender A	6.49% - 8.99%	Minimum credit score of 650, stable income
Lender B	7.00% - 10.00%	Minimum credit score of 620, at least 1 year of employment
Lender C	8.00% - 12.00%	Minimum credit score of 600, Australian residency

At Esteb and Co, we have access to a panel of 83+ lenders, ensuring you have a wide range of choices to find the perfect car loan that aligns with your needs and credit profile.

Steps to Use a Car Loan to Improve Your Credit Score

1. Assess Your Credit Situation: Obtain a free credit report from major credit bureaus to understand your current score and identify areas for improvement.
2. Choose the Right Loan: Opt for a car loan with manageable monthly payments and favourable terms that you can confidently meet.
3. Make Timely Payments: Consistently pay your loan instalments on or before the due date to build a positive payment history.
4. Monitor Your Credit Score: Regularly check your credit score to track improvements and ensure the reported information is accurate.
5. Avoid Additional Debt: Refrain from applying for multiple credit accounts simultaneously, as this can negatively impact your credit score.

Expert Tips and Considerations

• Consider setting up automatic payments to ensure you never miss a loan payment, which is crucial for maintaining a positive credit history.
• If possible, make extra payments to reduce the principal balance faster, potentially lowering interest payments and improving your credit score sooner.
• Be wary of predatory lending practices. Always read the fine print and seek professional advice if you're unsure about the terms of a loan offer.
• Use credit responsibly across all accounts to maintain a healthy credit mix, which can positively influence your credit score.

Frequently Asked Questions

• Can a car loan hurt my credit score? Yes, if you miss payments or default on the loan, it can negatively impact your credit score.
• How long does it take for a car loan to improve my credit score? It varies, but consistent, timely payments can lead to improvements within six months to a year.
• Do all car loan repayments get reported to credit bureaus? Most lenders report to major credit bureaus, but it's wise to confirm this with your lender.
• Will checking my credit score affect it? Checking your own credit score is considered a soft enquiry and does not impact your score.
• Is a higher interest rate car loan bad for my credit? The interest rate itself doesn't affect your credit score, but the ability to manage and pay the loan does.
• Can I refinance my car loan to improve my score? Yes, refinancing to a lower rate can help manage payments better, positively impacting your credit score.
• Does paying off my car loan early help my credit score? It can, by reducing your debt-to-income ratio, but maintaining a longer positive payment history is also beneficial.

Managing a car loan effectively can be a powerful tool for enhancing your credit score. With the right approach and lender, such as those available through Esteb and Co's extensive network, you can navigate the car loan landscape confidently and set yourself up for a healthier financial future.