A considerable number of people don’t check their credit history or have a low
credit score. However, with the advent of technology, lenders have found new
ways to help our individuals to seek funding with bad credit. Credit score plays a
vital role in seeking funds through loans, so if you have bad credit, you may have
to get a bit creative with your finances and follow some tips to get your
guaranteed car finance. Here are tips to help you if you have bad credit:
First of all, verify your car loan eligibility
There is no problem with seeking car loans with bad credit. However, it may prove
to be a costly endeavour as the interest rates on loans with bad credit are
reasonably high compared to loans with good credit. So, don’t look for a loan right
away and pay off your outstanding loans, debts, and dues to improve your credit
score. Look for ways to improve your credit first and then look for loans.
Refrain from applying for several loans in a short time
Companies and banks look for red flags when screening a loan application so
avoid applying for multiple loans in a short period. Before applying for your car
loan, make sure that you don’t have additional credit obligations or outstanding
dues, bankruptcy, or late payments, so your bank doesn’t decline when screening
your loan applications.
Check current interest rate of car loans
We know we said not to apply for several funding products in a short period, but
you can still check the market interest rate on car finance by scouring the market.
The interest rate is vital to choosing the right deals as it determines the amount of
your monthly installments and the duration for which you are going to borrow the
amount. So make sure that you check interest rates of several deals before you
finalize which one you want to apply for.
Be ready to make a higher down payment
The benefit of making a sizable down payment is that your loan amount comes
down. A significant down payment decreases the total cost of the car loan and
also means lower interest payments and small processing fees. The processing fee
has to be paid upfront so by paying a large amount as a down payment. You won’t
have to worry about paying extensive additional fees upfront while your monthly
instalment amount will go down too.
Borrow as per your repayment capacity
Follow a simple rule that monthly payments shouldn’t be higher than 50% of your
salary. Keep a low debt-to-income ratio to decrease the chances of defaulting on
your loan payments. Calculate your monthly payments for the loan you seek or
have chosen using an online tool and check whether you would be able to pay this
much or not. There are plenty of online tools that help in calculating loan
installments, interest rates based on loan tenure, and principal amount. So, make
use of these tools and do the math, so your research stays relevant when you to
out to apply for loans.
Explore pre-approved loan options from your bank
If you are an existing customer of a bank, then do check the pre-approved loans
from your bank. Some banks offer them based on the customer’s KYC paperwork. In
this case, having bad credit won’t hurt your chances of getting a loan, and in fact,
your chances of getting a loan will be increased from your bank. Talk to the
relationship manager of your bank and negotiate terms to get a pre-approved
the loan from the bank.
Go with your budget with choosing car models
Don’t be tempted into buying a posh model with all modern features. Set a
budget and choose a model that goes with your budget. If you have a bad credit
history, you might not be able to get a considerable car loan so ensure that you
look for the right approach for the car loan and choose the right model to avoid
the vicious circle of debt with high-interest payments.
Take out a loan against existing car or FD
If you already have a car, then you can take out a loan against a used car or your
fixed deposit as it is a great alternative. Your FD or used car can be used as
collateral while trying to obtain a new loan for the new vehicle. Don’t forget to
explore your options by checking out collateral loans with private lenders too and
verify the rates of interest before you zero in on one loan.
The major problem arises when you have to seek a loan with bad credit as most
banks shy away from providing loans to individuals with a bad or low credit score.
If you have bad or low credit, then you can apply for car loans from loan
aggregators, but this might be a costly endeavour as they will charge a higher
interest rate. Logically speaking, it is in your best interest that you seek to
improve your credit score before you apply for a car loan.
You can apply for 100% guaranteed car finance from private lenders or banks if
you have good credit and no money to make a sizable down payment. If you are
short on cash and don’t have many options for financing your car, then you can
also, go for second-hand used cars, but you will have to research a lot for cars in
good condition.