Buying a car is a dream that many individuals have. However, some people struggle with getting appropriate car loans when looking to buy a car. Especially if your credit isn’t ideal, your financing terms can be pricey. Lenders usually trust borrowers with excellent credit to make timely loan repayments. They are less confident in credit-challenged borrowers, and will considerably raise interest rates, and have stringent financing terms for borrowers with bad credit.
Although getting a car loan with bad credit is difficult, it is certainly not impossible. This article explores various methods you can employ to increase your chances of getting a car loan. To learn more about how car loans work and ways to successfully negotiate and purchase a car, refer to the actions outlined below.
Improve Your Credit Score
Any score below 580 is deemed poor according to the 300–850 range of the FICO credit rating system. The amount you owe, the length of your credit history, and your payment history are just a few factors that make up your FICO score. Your credit score may suffer if you have a poor credit history.
Before requesting a car loan, you should ensure your credit report is free of mistakes. Contact the credit bureau to report any inaccuracies or anomalies and get them fixed. You can raise your credit score in six to twelve months. Before applying for a car loan, avoid opening a new credit card or taking out any new loans. Raise your credit score by paying off credit card debt, terminating current loans, and consolidating debt. You also raise your credit by paying off your loan EMIs or equated monthly installments, a set monthly payment made by the borrower to the lender at a specific time.
Consider Making A Down Payment
Making a down payment on a car can improve your chances of obtaining and being approved for an auto loan if your credit score is poor. A significant down payment lowers the loan-to-value ratio, which lowers the risk to the lender.
Saving more money for a down payment increases your chances of getting a loan and enhances the loan’s terms. Putting away some extra money each month for a down payment can help you qualify for better loan terms and conditions.
Get A Co-Signer
In most cases, no guarantor or co-signer is needed when a borrower applies for a car loan. However, if you have bad credit, you might want to consider adding a co-signer to your loan application.
A co-signer is someone who accepts the loan alongside you. If the primary borrower cannot make loan payments, the co-signer is responsible for the payments. Therefore, the co-signer should ideally have a solid credit history.
You might choose this option if you are confident in your ability to pay the EMIs on schedule. The likelihood of a loan being approved increases with a co-signer. Having a co-signer might also help lower the loan interest rate and ultimately significantly lower the cost of the loan.
Explore Dealer Financing
To make it simple for clients to obtain auto loans, most car dealers have agreements with top lenders, including banks and NBFCs. The major disadvantage of this approach is the high cost of loans obtained straight from dealers and the subsequent high-interest rates. However, the qualifying requirements are lenient, which helps you get the loan quickly. If you choose to go ahead with a dealership, make sure to shop around, compare interest rates, and bargain the loan terms to your advantage
Obtaining a car loan with a low credit score requires additional planning. If you have terrible credit, you should expect higher interest rates for a car loan. Plan and set aside more money for a down payment to lower your overall loan balance and increase your loan eligibility.