5 Tips to get a car loan with a poor credit score.

Getting a car loan based on a poor credit score can prove to be a tricky task as lenders charge high-interest rates for having poor credit. This entire process turns up to be a burden as EMI amounts also increase with increased interest rates.

The steps and procedures for applying for a car loan with a low credit score are the same as that of applying with a good credit score. But the difference is noted only when it comes to repaying the loan. While repaying the interest rates charged to form a borrower with a poor credit score is much higher in comparison to the interest rates charged from a borrower with a good credit score. Thus having a credit score less than 750 means that the person can avail of a car loan but only at the cost of higher EMI installations.

Further, we have listed down some tips that might be beneficial for you to pay off your car loans even while having a poor credit score:

• It is very important to work on improving your credit score before you go shopping for the car model. The three-digit numeric score can evaluate your creditworthiness in front of the lender and it is considered to be at its best when it reaches 750. The higher the score goes the chances of getting a car loan approved rises further. Moreover, this score is calculated on the basis of one’s credit history which includes previous loan payments, repayments of credit card bills, and other EMI records. Thus it is suggested to check the credit report and ensure that there are no errors present. If you have the time to increase your credit score, say six months to approximately a year, then you can work on improving your score by making timely EMI deposits, repaying credit card bills, and closing/ consolidating existing loans.

• One of the best ways to get a car loan approved while having a low credit score is by offering a larger down payment. Most banks ( like ICICI car loan) pay for 80% of the price of the car that the borrower has selected to purchase. The rest of the amount is to be paid by the borrower himself, and the line of margin that the borrower pays from his pocket is known as a down payment. While having a poor credit score if one offers a huge down payment then he/ she can gain the trust of the lender or bank officials that he/ she is capable of repaying the loan. Moreover, offering a huge down payment reduces the loan to value (LTV) ratio thereby reducing the risk of the lender.

• Another way of availing of a car loan under a poor credit score is by bringing a co-signer who is eligible to apply for the loan with you. A co-signer is a person who is equally responsible for depositing the loan payments in case the primary borrower is unable to deposit it. Ideally, you should choose a co-signer who has a good credit score and has a better income level than you do. You can ask anyone amongst your parents, relatives, or friends to co-sign a car loan with you. However, the only drawback of this option is that the co-signer has to take up an equal amount of risk as he is held responsible for repaying the loan as well.

• When you have a poor credit history you might not be in the position to avail the latest car models, instead, you can compromise and go for other cheaper options. Instead of an SUV, you can look for extra features like premium leather seats, a sunroof, a good music system, etc.

• The last option that you can avail of when every other option fails is to get a loan from a car dealer. Although they make your loan costlier by offering loans at high-interest rates, they make it easier for you to avail of a car loan.

Author’s bio:

Gaurav S. Khurana is the Founder and CEO of Dialabank and has had a great career in the Banking and Financial Services Sector. He has an experience of 18 years in the sector and has worked at Senior Roles including National Sales Head at ING Investment Management India and as the Vice President Citibank. A post-graduate from IMT, Ghaziabad. Gaurav started his career as a Named Account Manager in Xerox.

Being a part of this field for a long time now, he has written many informative articles and blogs benefiting and assisting many in making decisions regarding the policies provided by various banks and non-banking financial companies such as the ICICI car loan policy.

Gaurav S. Khurana is the Founder and CEO of Dialabank and has had a great career in the Banking and Financial Services Sector. He has an experience of 18 years in the sector and has worked at Senior Roles.