Well, every one of us loves riding our own car. However, not every one of us can afford it. A bad credit score is one of the scenarios that can dampen your spirit and leave you not suitable to get a car loan.
So, is it possible to get a car loan with bad credit score? In most of the cases, it may be a severely daunting experience. Even if you manage to get a car loan with bad credit score, the terms may not be much favourable. However, do not fret as yet. Even when you have a bad credit score, you can expect a few options to get the best deals that may not break your bank.
Credit Score – An Overview
A Credit Score is a score or a metric of your financial health. The index is measured on the basis of your credibility as a borrower. It is calculated based on a wide range of parameters such as credit availed by you, total credit utilization and repayment history.
The credit score forms the basis for deciding your credit-worthiness. It will define and decide the repayment capacity of an individual. A bad credit score will be an indication of a failure in repaying the loans in the past. This bad history of payments can result in denial of loan to you, or even when the loans are granted, they would have very unfavorable or high rate of interest.
Is it possible to get a car loan with bad credit score?
Getting a car loan with bad credit score may not come easy, but it isn’t something impossible. While the credit score plays a major role in your capability of borrowing, you can follow a few tips to ensure that you can get a car loan with some good benefits.
Save enough for down payment
Saving enough money for the down payment can be one of the best options to reduce your burden on the amount borrowed. Anyone with a bad credit score is bound to get really difficult and unfavourable conditions for repayment.
If you can save some amount for down payment, that would reduce the amount you need to loan. Borrowing a lower amount will translate into lower interest and thus a favourable option in the long run. Making a bigger down payment can also help you get a more favourable interest rate.
Get a Pre-approved Loan
If you are looking to get the best car loan with poor credit score, opting for a preapproved loan would be a better approach. The lender will analyse your credit score, your income and expenses before offering a preapproved loan.
Preapproval of the loan will ensure that you will have access to prior access to the terms and conditions. However, do note that a preapproval does not mean you have access to the loan. The loan is normally preapproved subject to certain conditions. You will need to apply for the loan once you have finalised a car to buy.
Check out different lenders
Not all lenders think alike. You may get a car loan with bad credit score if you can check out a few lenders and compare the rate of interest offered by each of them. If the financial institutes are not willing to offer you a preapproved loan with bad credit score, you may get one from your car dealership.
However, do note that the lenders may charge you a higher rate of interest as they perceive your bad credit score as a high risk factor. That is exactly why checking out interest rates and offers from multiple lenders before taking a call.
What could be the rate of interest for a car loan with poor credit score?
That would be something dependent on individual lenders. If you have a good credit score, you will et favourable rate of interest. It would be exactly different in case of the bad credit score.
If we follow the rea world scenario analysis in 2019, we found that the borrowers with a credit score of 780 and above got a rate of interest of 4.2 per cent, while those with an average score between 500 and 600 got a whopping interest rate of 12 per cent!
Before we can conclude, here is a word of advise. Once you have decided to avail a car loan with bad credit score, make sure that you do not fall in the trap availing multiple loans. No matter how small the amount may be, your credit score will be dearly affected with multiple loans.
In essence, you can not expect a car loan with good interest rates if you have a bad credit score. Focus on improving your credit score by paying your bills in time and clearing your outstanding borrowings – even if it means sacrificing your luxury for a shorter time span.