Having a high credit score has its share of advantages, especially when you are applying for a car loan. However, getting the lender’s approval for your loan can be challenging if you don’t have any or a low credit score. Even if some lenders approve your car loan application, they may charge you high interest. But the good news is that you can still avail of a car loan despite a low credit score by following the tips below.
Apply for a car loan with an NBFC
If you have a low or no credit score, you can secure a car loan from an NBFC (non-banking financial company) or any other private lenders, as they tend to have more relaxed norms as compared to banks. However, you must note that NBFCs charge a higher interest rate than traditional lenders. So, assess your requirements and financial options before approaching an NBFC for a car loan.
Offer a large down payment
Another simple and effective way to get car loan approval, even with a poor credit score, is to offer a large down payment. Generally, financial organisations do not fund 100% of the on-road vehicle’s cost. They approve a maximum of 80% of the price; some lenders may approve up to 90% of the cost if you have an existing relationship with them. You must pay the balance amount from your pocket.
If you have a poor credit score, i.e., lower than the lender’s minimum credit score requirement, you can offer to pay a large down payment to increase your eligibility. When you pay a hefty amount upfront, you can borrow less and repay the amount without any hassles.
Choose a low-budget car
With a poor credit score, you may not be eligible to borrow a higher loan. This means you may not be able to purchase a high-end car or an SUV (sports utility vehicle). So, you can buy a budget car and forgo the extra and premium features like customised leather seats, sunroof, etc., to reduce the overall loan amount. If you apply for a small loan, you may have a higher chance of getting your car loan application approved.
Bring a guarantor or apply for a joint loan
Even if you have a low credit score, you can still get approval for a car loan by bringing in a guarantor or applying for a joint loan. The co-applicant or the guarantor must have a good credit history and a high credit score, i.e., more than the lender’s minimum credit score requirement.
The lenders are mainly concerned about recovering the money they lend. And if they can see that the guarantor or the co-applicant has a strong financial profile and high credit score, they will sanction your loan faster.
Explore dealer financing option
The majority of car dealers have collaboration with leading banks and NBFCs to make it easy for customers to get car loans. However, a significant drawback of obtaining funds through this option is that you may have to pay a high interest rate. On the positive side, though, they have simple and easy eligibility requirements; they may approve your loan even if your credit score is low.
Securing a car loan with a low credit score is challenging but possible; it requires careful planning. Make sure that you have a well thought out repayment plan so that you can easily repay the EMIs. Work out your finances, determine the maximum EMI you can afford to repay every month and borrow accordingly.