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A car is a dream investment for many youngsters. But it is not easy to get a car loan with a poor credit score. In this blog, we’ll discover how you can get a car loan with a poor credit score.
A car is a millennial’s dream and an item of convenience. You go to work, drop your kids at school, go shopping, or go on road trips – having a personal car makes life much more accessible and saves commute time. However, a car loan with a poor credit score (less than 660) may seem a far-fetched dream.
Before you go about deciding your future car and how much to spend on it, you need to figure out how you get a car loan with a poor credit score.
The good news is that many car dealers are more than willing to work with buyers with a bad credit score.
And if you can pay your installments on time, it can improve your credit score also.
Before you go ahead and get a car loan with a poor credit score and purchase a car for exorbitantly high interest, there are a few steps you should take to make the right decision.
First and foremost, find out how severely poor is your credit score. If it is below 650, you may find it hard to get the car of your choice, or it may take some time until you can get it. But there might be some hope if it is between 750-650.
There are many portals available that send you free credit reports. Alternatively, you can visit your credit card company’s or bank’s web portal and subscribe to free credit reports. Check it periodically to keep a close tab.
If you have a low credit score, it would be wise if you could save at least half of the amount of your chosen car cost.
When your credit score is bad, there is a high chance you may not be able to finance the whole amount.
Getting a co-signer simply means having a guarantor, who will have to pay if in case you are unable to pay the dues for 90+ days.
Yes, it is risky for the co-signer. But it is one of the guaranteed ways to avail of a car loan. It helps you reap the benefits of your co-signer’s good credit score.
Before going car shopping on a car loan with a poor credit score, be informed that the loan provider may run a hard inquiry on your credit report and check your financial stability.
Your total debt outstanding must be less than your earnings to improve your chance of getting an auto loan.
Furthermore, money lenders check employment and residential proof to determine your creditworthiness.
So, be prepared to show address proof and recent pay slips.
At car dealerships, the salesperson will try to upsell you to earn a commission. But you may have existing debt that you pay every month.
So, you have to be very sure in your mind which car you’d purchase based on how much you can afford.
That’s not all. Beyond the car loan instalments, you’d also have to pay fuel, car insurance, road taxes, servicing, registration fees, etc.
Therefore, calculate before buying the car.
To avail of a car loan, you should be aware of the eligibility criteria. Although it defers from one lender to another, in general they are as follows:
Many money lenders do not allow borrowers to pay back early. So, read the loan terms and conditions carefully about early repayment.
If it is permitted, pay back early and save your hard-earned money from paying interest. But make sure that doing so wouldn’t affect your credit score in any way.
Once you are all equipped and well-informed about getting the loan, there are three ways you can do it:
Getting a car loan with a poor credit score may temporarily dip your credit score. Since it is a new credit application, the lender has to launch a hard inquiry, reducing the credit score for some time.
New credit accounts for 10% of your credit score. Read our blog to know more about credit scores and how a bad credit score can affect you.
However, if you pay your dues on time, your credit score will improve over time. Therefore, you must practice responsible credit habits to improve your bad credit and fulfill your dream of owning a car.