4 Tips That Can Help You Get Auto Loans
There is no stopping you from getting car loans if you have a good credit score. However, not everyone is financially equipped to pay off their debt on time. Those who have a history of not paying their bills on time or owing money to the money lenders or banks end up with a credit score they are not proud of. Such defaulters with bad credit may find the financing terms set for them at the time of applying for a loan to be expensive. Lenders use credit score as a parameter to predict the likelihood of the borrowers paying back what they have taken. The lower the scores, the riskier to lend money to the said individuals. In exchange of that risk, they charge a higher rate of interest.
We believe that poor credit score should not stop you from getting the car you want. Availing an auto loan can be rather tricky. However, there are ways of getting the loan you need for your dream car.
Worry no more.
Let’s take a look at the steps to applying for a car loan first.
How to apply for a car loan with a poor credit score?
The steps to applying for a car loan with poor credit scores are identical to applying for an auto loan with a good credit score. You choose the car model, shop around, compare lenders, and approach your preferred lender.
But the big difference is that you will have to pay higher interest when you take a car loan with a poor credit score. The overall loan will cost you more, and you have to repay it with bigger EMIs and for a longer tenure.
Generally, borrowers with excellent credit scores – above 750 – are offered lower interest rates than borrowers with poor credit scores.
ere, we share the top tips with you to help you land a car loan with acceptable terms, despite having poor credit scores.
Here are 4 tips that can help you get auto loans without a fuss –
Work on improving your credit score prior to going car shopping
It is advisable to check your latest credit score before applying for an auto loan or any type of loan for that matter. Ensure that your credit report is error-free. If you notice any errors or discrepancies, connect with the credit bureau to get it rectified.
Be on your best credit behaviour in the months leading up to taking a car loan. Do not take on any new loans or apply for a new credit card. Paying off outstanding loan EMIs and credit card bills, and closing existing loans are a few ways to improve your credit score.
Offer to pay a large down payment
The best way to make sure that your car loan gets approved in spite of a poor credit score is to offer to pay a large down payment. Generally, most lenders do not sanction loans for 100% of the on-road price of the vehicle. The loan amount covers only 80% of the car’s price. Borrowers have to pay the rest out of their pocket.
Poor credit scores drastically limit the amount of loan you can procure. In this context, offering to pay a larger down payment can improve your eligibility for securing the loan. When you pay a large down payment, it reduces the LTV (Loan-to-value) ratio, thereby, reducing the lender’s risk.
The larger the down payment, the better. The more you save for the down payment, the more it improves your chances of securing the loan, and better are the terms of the loan.
Go for a budget car
Having a poor credit score means you are ineligible for higher amounts of loan. This means purchasing the latest sports car or an SUV becomes infeasible. Instead, go for budget cars and compromise on extra features like – premium leather seats, or perhaps, a sunroof to bring down the overall loan amount by cutting out these overhead charges.
When the amount you’re looking to borrow is paltry, the lender is more likely to approve the loan, even with a lower credit score.
Final resort – explore dealer financing
Many car-dealers partner with leading banks to make car loans easily available for their customers. The main downside of the system, however, is that loans from dealers are expensive. The rate of interest is on the higher end of the spectrum. On the bright side, the eligibility requirements are not strict that expedite the process of securing the loan.
A word of warning, even if you go with the lender the dealer recommended, make sure you search, compare interest rates and negotiate the terms of the loan that are compatible with your financial predicament.