April 20, 2024

How To Get A Car Loan With A Bad Credit Score?

4 min read
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Owning a car is both a status symbol and a necessity today. Lack of capital can be an issue for many, but funding from banks and NBFCs can resolve the problem. Considering the growing demand for cars in India, car loans have become common. Individuals can avail of car loans with agreeable interest rates by meeting the eligibility criteria and presenting the required documents.

Check car loan eligibility, and you will notice credit scores are a major influencing parameter in evaluating car loan applications. A high credit score shows credibility, increasing the chances of approval and getting better terms. However, car loan applicants with poor credit scores can get approval. Read on to learn how to apply online or offline before opting for a vehicle loan!

Effects of Bad Credit Scores on Car Loan Applications

Borrowers can apply for a car loan online or offline. In any case, banks, more than NBFCs, try to avoid applicants with bad credit scores due to the high chances of default. If the application gets approved, interest rates will likely be way higher with more strict conditions.

Take a look at a typical credit score range.

CIBIL Score Range Rating
300-500 Poor
550-650 Average
650-750 Good
750-900 Excellent

Tips to Get a Car Loan with a Poor Credit Score

It is difficult but not impossible. Credit scores can go down for many reasons, which may or may not be the fault of individuals. Certain ways exist to overlook the bad credit score and avail of a car loan online and offline!

1.   Improve Credit Score

Efforts to raise the credit score can remove the problem from the roots. It will take time and continuous financial discipline. However, it will increase the chances of getting easily approved for loans, even unsecured ones!

Here are the best ways to improve credit scores.

  • Make timely payments on existing loans.
  • Pay off any pending EMIs.
  • Refrain from taking multiple loans at the same time.
  • Do not apply for multiple new credits at the same time.
  • Keep a low credit utilisation ratio on credit cards. 30% or low is suggested.
  • Maintain older credit cards to extend credit history.
  • Consider debt consolidation.

2.   Pay a Hefty Down Payment

A considerably high down payment will reduce the loan amount, shrinking the risk for the lender and the financial commitment of the borrower. In return, it will improve the chance of loan approval.

3.   Apply with a Co-signer

A guarantor or co-signer is not a compulsory requirement to apply for a vehicle loan online or offline. However, a co-signer with a high credit score will make the application less risky for banks. It is a good alternative for borrowers with low credit scores.

4.   Request an Affordable Loan

Borrowers must be careful with the loan amount they ask for. It is not a good financial decision to take a high loan amount only because it is available. It is crucial to check the monthly expenses and draft a budget. Calculate the EMI with the loan amount, tenure, and interest rate. Use a car loan EMI calculator to get quick and accurate results. Then, opt for the loan only if you can afford the EMI. If borrowers forget to pay the EMIs timely, their credit scores will take another hit and fall, sinking their credit portfolio further.

5.   Look for Alternatives

Certain lenders in the market specialise in lending to borrowers with low credit scores. Explore such options. The car loan interest rates naturally can be on the higher end. When looking for such lenders, make sure to evaluate their credibility. Check their credit ratings assigned by CRISIL, ICRA, CARE, or other agencies.

6.   Pledge Collateral

Put collateral at the bank when applying for a car loan to secure it. The bank will have the permit to use the collateral to retrieve the loaned amount in case the borrower defaults. Borrowers can pledge their existing car, FDs, savings, or other assets. A reminder here! Pay EMIs on time to ensure the loan does not default and the asset is not lost.

Important Factors to Remember

While borrowers apply different strategies to compensate for their low credit score, the following factors should be considered.

  • Applying for a vehicle loan online can make the process easier. It will allow borrowers to quickly compare various loan options, interest rates, and other terms and conditions without visiting the lenders.
  • It is compulsory to check car loan eligibility and ensure the borrower ticks all the boxes.
  • Borrowers must carry all required documents, like identity, address, age, and income proof.
  • Borrowers should read all the terms and conditions thoroughly before taking the loan to ensure no unwanted complications.

Wrapping Up!

The eligibility criteria, including the credit score requirement, can differ from bank to bank. Borrowers should research properly to find the most suitable option. When you check car loan eligibility, don’t overlook any other factor since a low credit score is already an issue here. Practise responsible financial behaviour to keep future credit prospects promising throughout the entire time of applying for a loan to pay back.

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