December 3, 2024 · 11 mins read
Santosh Kumar
People often seek car loans when they want a car but cannot afford to pay cash. In the process of acquiring a car, many face one major problem: getting a loan when the CIBIL score is not so great. One can say that a bad CIBIL score may not necessarily rule out the chances of acquiring a car loan altogether. This guide will walk you through the steps and strategies to help you acquire a car loan even with your bad CIBIL score.
So, buying a car is a huge step in your life. But getting approval for a car loan when your CIBIL score is not good is a tough challenge. Many people wonder how to get a car loan with a bad CIBIL score—especially in case lenders usually prefer applicants who have strong credit histories. The good news is that a low CIBIL score does not have to stop you from driving the car you need. Even with a bad score, you can still secure a loan from the lender, but improving your score will give you better loan options. This guide explores practical strategies on how to get a car loan with a bad CIBIL score and points out some steps that can help you secure a loan despite financial challenges.
Let's first take a brief glance at what a CIBIL score is before we go on to how to get a car loan with a bad CIBIL score. The CIBIL score is a 3-digit number between 300 and 900 that indicates your creditworthiness to the lender. A higher score ensures that there is a higher chance of repayment from you, whereas a lower score means that you would be a risk for lending to. Usually, a CIBIL score of over 750 is considered to be good, and below 600 is considered very poor. A bad CIBIL score, which ranges from below 600, may group you as having a bad credit rating, which is considered really bad and can cause you problems in trying to borrow money, including car loans.
Lenders, such as banks and other financial institutions, use your CIBIL score to determine how likely you are to repay the loan. If a person has a low CIBIL score, it means that he or she has possibly defaulted payments in the past or is living heavily in debt, which would mean increased risk for the lender.
At the time of car loan application, lenders use your CIBIL score to decide on the following:
1. Whether they should approve or reject your loan application
2. The interest rate you’ll be offered
3. The loan amount and repayment tenure
A bad CIBIL score can lead to higher interest rates or even rejection of your loan application.
Read More:: What is CMR Rating in CIBIL?
Yes, you can get an automobile loan even with a bad CIBIL score, but that would be harder to do. Some lenders may refuse to approve your application. However, there is a better chance if you follow these steps:
Even with a poor score of CIBIL, it will be worth trying to enhance your score before you apply for a car loan. This is how you could boost your score short term:
1. Clear any outstanding dues: Pay off any pending loans or credit card bills. This will decrease your debt-to-income ratio and make you look more creditworthy.
2. Pay EMIs on Time: Ensure you pay your existing loans or credit card EMIs on time. Payment history makes up a large portion of your CIBIL score.
3. Get your CIBIL Score Report: You can avail of a free CIBIL score report once a year. Go through the reports to check for discrepancies and obtain them corrected, as mistakes in the report will not be considered in a positive way for your score.
4. Maintain Low Credit Utilization Balance: Ideally, keep your credit utilization below 30%. If you have a credit limit of ₹1 lakh, avoid using more than ₹30,000 at any point.
These steps will not be a quick fix to increase your CIBIL score overnight, but over time, they will improve it and increase your car loan approvals.
If your CIBIL score is low, consider applying for the loan with a co-applicant or guarantor who has a better credit score. This could be a family member or a close friend. A co-applicant is someone who shares the responsibility of the loan and whose creditworthiness will be assessed along with yours.
Your loan is more likely to be sanctioned by lenders if your co-applicant has a high CIBIL score in addition to your own because it minimizes the lender's risk. However, do not forget that both you and your co-applicant will have liability for the loan repayment
A bad CIBIL score can make lenders refuse to grant loans for larger amounts. You can apply for a smaller loan amount to increase the chances of getting the loan approved. Lower loan amounts are fewer risks for lenders, and they will most likely get approved easily.
Taking a smaller loan may also result in more favorable terms, such as better interest rates and longer repayment periods. This could be a smart strategy if you do not need a huge loan.
One of the best ways to ensure a higher car loan approval ratio, even with bad CIBIL scores, is to offer a higher down payment. The greater the down payment, the lower the LTV ratio will be, thus lowering the lender's risk of lending.
If you’re buying a car worth ₹10 lakhs, offering a 30-40% down payment could significantly increase your chances of approval. The larger your down payment, the less the lender needs to finance, which makes them more likely to approve your loan application.
Not all lenders operate with the same criteria for approving car loan schemes. A traditional bank may be very stern when credit scores are concerned, and online lenders, as well as NBFCs, might be a little lenient. Besides this, they even offer loans at a higher rate of interest to mitigate the risk involved in lending to someone with a low CIBIL score.
Always shop around and compare terms and conditions before applying for a car loan. Some organizations may be ready to lend to customers with a low CIBIL score but with a higher interest rate or a lower loan amount.
Secured loans are a good option if you have a bad CIBIL score. A secured loan means providing collateral - a fixed deposit (FD) or another vehicle - to secure the entire loan amount with the lender. In effect, you're giving the lender a form of protection in case you fail to repay the loan. They are likely to approve your car loan if they have a backing of some sort of collateral because that lowers their risk. But please note that if you default, the lender can take away that collateral in the worst-case scenario.
If you have a bad CIBIL score, you must not hesitate to negotiate with the lender. Lenders usually make decisions based on the credit scores of most prospective borrowers, but you may be able to negotiate with them by showing them that you have an income that is stable and a plan for paying back the loan.
You could also ask for a lower interest rate or better repayment terms, such as longer tenure, to lower your monthly EMI. Some may agree to work this out with you if you can demonstrate that you're committed to making timely repayments.
Other banks and finance institutions offer low CIBIL score loan schemes to help people. These usually come with high rates, but they are your best bet for getting the money you need. For the next step, search for loan offers offered by lenders who specialize in providing loans to people with bad credit scores. These lenders may have less stringent eligibility criteria and may be more likely to approve your loan application.
You can ask for a pre-approved car loan if you have an established banking relationship. Banks will likely offer you a pre-approved loan if you have a well-established relationship with them and have made timely payments over the years.
A pre-approved car loan is when the lender has already analyzed your eligibility based on your credit history, income, and relationship with them. Even though this does not guarantee approval, it makes the loan process smoother and quicker.
Even if you can finally get a car loan with a poor CIBIL score, keep working on your credit score. A good score opens up more lucrative financial deals, like lower interest on subsequent loan deals. Improving your CIBIL score for a car loan takes the following steps. First is regular credit report monitoring, which will indicate errors or inaccuracies that might be dragging it down. Bring these to the attention of the concerned and dispute any incorrect entries. Then focus on the timely payment of all outstanding debts and try to clear all arrears because payment history influences the score significantly. Try to keep your credit utilization ratio below 30% of your credit limit. Do not apply for several loans or cards within a limited period since each application will generate a hard inquiry, lowering your score over time.
Read More:: Reasons For Loan Rejection Despite Good CIBIL Score
Follow the steps listed below after selecting your car loan provider, the principal amount and the type of loan:
1. Visit the branch office or the official website of the lender.
2. Fill out the loan form, attach a picture of your photo ID and other agreed-upon documents, and then submit this to the office of the lender.
3. You can also submit the application online and upload the documents on the official portal of the lender.
4. The lender reviews your car loan application and updates the status through SMS or your registered e-mail ID.
Read More:: Benefits of Good Cibil Score
So, to answer the question of how to get a car loan with a bad CIBIL score, a bad CIBIL score can make getting a car loan tricky. However, it is possible if handled properly. When your credit score is not so great, lenders will likely be apprehensive. But there are solid ways to boost your chances for improvement. For instance, when your creditworthiness based on score, income stability, and credit history is evaluated, many improvements can make a difference in your profile. Similarly, other options may be co-applicants with good credit scores or offering security or collateral. If you’re looking into how to get a car loan with a bad CIBIL score, remember that it requires a bit of planning and persistence. Working to improve your score, even incrementally, may help, as will comparing lenders specialising in low-score loans. Stay proactive, research your options, and be open to adjusting your expectations—such as opting for a smaller loan amount or a higher down payment.
Even if you have to put in a little more effort, all these strategies can support you in getting a car loan and hitting the highway. With patience and the right steps, you can successfully navigate this process despite a low CIBIL score and drive home your new car
Q1.Can I get a car loan with a low credit score?
Getting a car loan with a poor credit score is possible, but interest rates may be high.
Q2. Will my interest rates be higher with a bad credit score?
The interest rates on such car loans with lower credit scores are usually higher.
Q3. How can I increase my chances of approval with a bad credit score?
You can demonstrate a steady income or secure a loan with a guarantor.
Q4. Are there any other options to offer traditional car loans for low credit scores?
Some automobile sellers offer direct financing and minimal paperwork, so you can get a deal even with a lower credit score.
Q5. What hazards are associated with dishonest lenders?
You may get a higher interest rate and hidden charges or fall into a scam.
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