Do you feel that your credit score is hindering you from buying the dream car you’ve always wanted? Find out the best tips from experts on how you can secure an auto loan even if you have poor credit scores.
The process of getting an auto loan despite low credit scores is an extremely difficult job. Even if you are approved the lender will charge more interest, leading to an increased EMI along with an increasing the overall cost of the loan.
But don’t lose heart. We’re here to assist you out. Even if your credit score isn’t great, we can help locate a car loan with low rates. Making timely payments is a fantastic method to boost your score on credit.
1. Improve your credit score prior to you shop for a car
A credit score can be described as a 3-digit number which lenders use to determine your creditworthiness. The higher the score, higher your likelihood of getting the loan with favorable conditions. Credit score calculation is by analyzing your credit history such as prior loans, payments on credit card charges as well as other EEMIs.
It is highly recommended to examine your credit score prior to making an application for a car credit (or any other kind or loan). Make sure the credit reports are not contaminated with errors. If you find any mistakes or discrepancies, contact the credit bureau in order to have the report corrected.
If you’re able to wait for it, let’s say six months to 1 year in length, then you may be able to increase your credit score prior to applying for an auto loan. Make sure you are on the best behavior in the months prior to when you apply for an auto loan. Do not take on new loans or apply for an account with a credit card.
2. Make an offer to pay a significant down payment
The most effective way to make sure that your loan for a car is approved if you have a low credit score is to provide the full amount of your down payment. Most lenders will not approve loans for 100 percent of the price of the car. The loan amount only covers 80percent of the car’s cost. The borrower is required to take the remainder from his or her money.
If you have poor credit scores, making more down payments can increase your chances of getting the loan. If you make a substantial amount of down, it decreases your LTV (Loan-to-value) percentage which reduces the risk of the lender.
The more you can put down the greater the down payment. The more you can save to make the down payment the better your chances of getting the loan. Also, better are the conditions that the lender will offer.
Also check– Bad credit car finance
3. Have a co-signer join the board
Typically, borrowers don’t need co-signers or guarantors when they apply for the auto loan. If your credit score is low Consider bringing a cosigner to sign the loan application.
A co-signer can be defined as a person who is able to take the loan with you. The co-signer is accountable for the loan repayments if the borrower who is the principal repay the loan. The ideal co-signer must be someone with excellent credit scores.
If you’re certain that you’ll pay your EMIs on time, then you may opt for this method. Co-signing with a co-signer increases the odds of getting a loan. It dramatically lowers the cost of the loan through cutting down on the interest rate.
4. Pick a car that is budget-friendly and leave out the unnecessary features
A low credit score will mean you’re not qualified for loans with higher amounts. That means that buying the latest model of sports car/SUV is impossible. Instead, opt for low-cost cars and sacrifice on options like high-end leather seating, sunroofs and so on. to lower the total amount of loan.
If the amount you’re hoping to borrow is low and not too large, the lender is more likely to give you a loan, even if you have a low credit score.
5. Final resort – explore dealer financing
The majority of car dealers have agreements with the top lenders including banks and NBFCs to allow their customers to get credit for their cars. But the main drawback of this process is that loans obtained directly from dealers are expensive. The rates of interest are very high. However, on the plus aspect, eligibility requirements aren’t too strict, which helps to get your loan in a short time.
Beware – even if you’re choosing the lender recommended from the broker, be sure to do some research to compare interest rates and negotiate the conditions of the loan to benefit you.
It is a fantastic option to boost your credit score. If you pay back the EMIs promptly and in a timely manner, you will significantly increase your score over the next several months. To ensure you do not miss payments, make automated payments through ECS. This method, the EMI is deducted automatically from your bank account each month, so you don’t overlook the payment.
By making regular payments, you will see your credit score begin to improve. If your credit score increases you may also think about refinancing your car loan to get better rates.