There are a number of banks and Non-Banking Financial Companies (NBFCs) that give the facility of car loan to their customers. You can easily fund your car using these loans and take your dream car home with you.
But there are numerous other factors that affect the car loan and should be kept in mind while applying for a car loan. And one of the most vital factors is a credit score. If you have a bad credit score, it can reduce your chances of getting a car loan approved by the bank.
How to get a car loan with a low credit score?
A large number of people in India have low credit scores. Still, some banks allow those customers to make their dream come true by availing of a car loan. So lenders have given some fantastic methods by which you can apply for a car loan with a low credit score. The methods are:
Down Payment
If your credit score is low, then you can volunteer to pay a considerable amount as a down payment for your car. A high down payment will lower the loan amount. And the Car Loan interest rate associated with it. Banks need some kind of assurance that you will repay the money because your credit score is low. And credit score shows your creditworthiness. So if you make a huge down payment, that will give banks an assurance that you've paid half the amount now. Only a small portion of the principal amount is left.
Repayment capacity
Banks do give the EMI facility to their customers. But the EMI doesn't exceed 60% of your income. So always take a loan amount according to your repayment capacity, and income has to be according to the loan amount you take. Some banks do offer more money but don't fall for that trick. And remember that you'll have to repay that money along with the interest rate and if you're unable to pay that, then your car will be seized. You can plan your budget using some online tools like the EMI calculator. Where you'll have to enter the loan amount, interest rate and tenure, then click submit. It'll show you the interest you'll pay and the EMI that you'll pay every month.
Multiple loans
Don't take multiple loans or debts at the same time. Because if you're unable to pay those debts at the same time, then it will affect your credit score. And banks check credit history before approving the loan application, so if you've taken multiple loans, then banks will look at you like you're hungry for credits/money. And if you're unable to pay those debts, then banks will decide that you are a red flag, and you don't pay your EMI on time.
Co-signer
If you have a low credit score, then you should apply for this option. A co-signer is someone that will take the responsibility of repaying the loan amount along with you. It can be anyone, your friends, family or relatives. You can borrow their credit score and income capacity to be eligible for this loan. But be sure to choose a co-signer that has a high credit score and high-income capacity because a high credit score will help you get a lot by giving low-interest rates or any other profits.
Documents
Read all the paperwork given to you related to car loan carefully. Don't hesitate to ask any doubts to your financial advisor or bank manager. It's necessary for the customers to know everything before they enter into an agreement. Read all the terms, conditions, fees and charges carefully before deciding anything. Banks like ICICI provide ICICI car loan to their customers, after they receive all documents.
Conclusion
There are a lot of options that can give you a discount, so be sure to research everything regarding car loan carefully and then make any decision. Some banks allow you to apply even if your credit score is low. But make sure to pay your current car loans EMI on time to help you increase your credit score.
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