Bad Credit Car Loans
With the boost of the country’s economy, the purchasing power of the younger generation has increased considerably.
Not surprisingly, everyone wants to improve their quality of life by owning the best of things, like designer clothes, good food, a society apartment, and a dream car.
Owning a car is not just a status symbol, but also a necessity these days. Whether you’re driving to work in rush hour or picking up your kids from school, having a car is convenient.
There are countless makes and models of cars available in the market to meet the diverse needs of consumers.
From sport utility vehicles (SUVs) and multiple utility vehicles to passenger cars and commercial vehicles, you can have the car of your dreams with easy financing from banks, non-bank finance companies (NBFCs), and other lenders.
How To Apply For Bad Credit Car Loans?
While there are many avenues to obtain financing for the purchase of your dream car, due to certain factors, an application for a car loan can be rejected.
One of the reasons is having a bad credit rating. It can reduce the chances that banks will approve a loan.
Before applying for bad credit car loans, shop around, do your research online for a better deal. Whether it’s a new car loan or a used car loan, visit a comparison website to compare various auto loan offers at the top banks in the country.
Choose a car loan with a low-interest rate to save on interest payments. Some banks also offer bad credit car loans.
You can apply for a car loan through the online or offline method:
The online method involves submitting an online car loan application through the bank’s website or a third-party website. Complete the online application form and submit it along with the necessary documents such as proof of valid identity, proof of address, proof of age, and proof of income.
The offline method involves visiting a bank branch in person and applying for a car loan with the help of a banker. The executive will verify the documents provided before approving or rejecting the loan. When it comes to loan approval, the price of the car, the make and model of the car, and the income and credit score of the applicant are the key deciding factors.
Minimal documentation or paperwork is involved in the online method compared to the offline method. Additionally, banks offer special offers to customers to apply for a car loan online to facilitate a digital economy.
What Are The Eligibility Criteria To Get Bad Credit Car loans?
Before applying for bad credit car loans, it is important to verify loan eligibility in terms of income and credit score. Here are the standard eligibility criteria set by banks for auto loan applicants:
- The applicant must be a minimum of 21 years to a maximum of 65 years.
- In the case of self-employed applicants, you must have a minimum of 1 year of experience in the same field.
- Salaried persons must have a minimum of 2 years of work experience.
- He or she must have a minimum annual income of Rs. 2 lakh for any approved make or model of car.
- Some banks offer pre-approved auto loans for existing customers with minimal documentation, such as KYC documents.
What Are The Documents Required To Apply For Car Loans?
Along with a duly completed and signed application form, it is important to present valid documents such as:
Proof of Age
A birth certificate, PAN card, passport, voter ID, or driver’s license can be presented as proof of age.
Proof of Identity
Voter ID, Aadhaar card, PAN card, passport, or driver’s license can be presented as proof of identity with a series of more recent passport-size photographs.
Proof of Address
Ration cards or utility bills, such as electricity bills, phone bills, and water bills, can be presented as valid proof of address.
Proof of Income
The most recent paycheck stub, last month’s bank statement, ITR, Form 16, etc. can be submitted as proof of income for salaried and self-employed persons accordingly.
Before submitting the application form, make sure that the data provided by you is valid to avoid the rejection of the loan on the basis of misrepresented, false or incomplete data.
Easy Tips To Get Low Credit or Bad Credit Car Loans
A significant number of the Indian population have a low credit score or no credit history. Still, with the advent of technology in the financial segment, lenders have introduced new methods of providing finance to people with bad credit.
Check Your Car Loan Eligibility
Getting a car loan with a low or bad credit score can be more expensive compared to those with a good credit score. Get a free credit report from one of the credit reporting agencies in India.
If you have a bad credit score, try to improve it before applying for a loan. Some ways you can improve your credit score are by paying off existing debts, and outstanding fees, and making payments on time.
Check Current Car Loan Interest Rate
Compare various auto loan offers online and choose a low-interest rate car loan. The applicant with a good credit score can get better rates than the one without it. The interest rate on the auto loan determines the total cost of your bad credit car loans and the EMI payments.
Volunteer For a Higher Down Payment
When you make a hefty down payment on your car, the total cost of the car loan goes down. A higher down payment also means lower interest payments and processing fees.
The processing fee for an auto loan is a small percentage of the principal loan amount that the bank must process. The borrower must pay it in advance at the time of receiving bad credit car loans.
Borrow Based On Your Ability To Repay
EMI payments should not exceed 50% of your salary. Keep a low debt-to-income ratio. A high debt-to-income ratio means a greater chance of defaulting on loan payments.
You can calculate your monthly EMI payments for your chosen loan amount using the car loan EMI calculator that is available on the bank’s website and on third-party websites. Simply enter the loan amount, loan tenure, interest rate, and processing fee in the tool and click ‘Calculate’.
The tool will present you with instant and accurate results in the form of an amortization table. The table consists of your payment schedule such as monthly EMI payments, general interest payments, outstanding balance after each EMI payment, etc.
Apply For a Pre-Approved Loan From Your Bank
Some banks offer pre-approved loans to existing clients based only on their KYC paperwork. In such a case, even with a bad credit rating, you have a better chance of getting bad credit car loans from your bank. Talk to your bank’s relationship manager and negotiate the terms.
Go For a Car Model That Fits Your Budget
Applicants with a bad credit rating may not get a large car loan. So, go for a car model that doesn’t exceed your budget and, if necessary, dispenses with certain luxurious features like the advanced speaker system or the sunroof.
Rent a Car Instead of Buying One
Lease payments are comparatively lower. This is an option only if you don’t get too many miles in the car. Otherwise, you will end up paying high service charges and other fees. Also, this is an ideal option for those who have a penchant for changing cars every few years.
Choose Wisely When Raising Funds From NBFC or Other Lenders
Car dealerships will recommend a few financing options, but you need to be careful when ruling them out. Look for reputable lenders with credibility. If the offer is too good to be true, it most likely is.
Read the Documents Carefully
Go through all the formalities related to the application and processing of your car loan with a fine tooth comb. If you are unfamiliar with certain jargon or have questions about the terms and conditions of bad credit car loans, feel free to check with the bank executive.
Familiarize yourself with the prepayment or foreclosure fees charged by the bank. A percentage of the outstanding balance is charged to prepay the loan before the end of the loan term.
Frequently Asked Questions (FAQ) About Bad Credit Car Loans
Can a person with a poor credit rating get a car loan?
Although it may seem impossible to get a bad credit loan, the good news is that it is not. There is no minimum credit rating required to get a car loan, which means people with bad credit may need to find the right lender to get car loan.
Can you get a 72-month car loan with bad credit?
It is possible to get approved for a car loan with very bad credit. If your score is equal to or less than 500, you can expect interest rates of around 13.97% for new cars and 20.67% for used cars.
How can I get a car with bad credit and no money down?
Consider car dealerships, local credit unions, banks, or alternative loan providers. Research current auto loan rates online and look for specialized online lenders who offer low-rate auto loans with no down payment requirements.
What credit score is needed for a car loan?
First things first: While there is no defined minimum credit score for a car loan, it is always good to have a high credit score. In general, a score of 750 or higher is recommended to have a good chance of being approved for a loan and securing the best interest rates.