With the boost in the Indian economy, the purchasing power of the younger generation especially has gone up considerably. It is not surprising that everyone wants to improve their quality of life by owning the best of things like branded clothes, fine dining, a society apartment, and a dream car. Owning a car is not only a status symbol but also a necessity these days. Whether you are driving to work in rush hour traffic or picking up your children from school, having a car is convenient.
There are innumerous makes and models of cars available on the Indian market to meet the varying needs of the consumers. From sports utility vehicles (SUV) and multi-utility vehicles to passenger cars and commercial vehicles, you can own a car of your dreams with easy funding from banks, Non-Banking Financial Companies (NBFC) and other lending institutions.
Although there are many avenues to obtain financing for the purchase of your dream car, due to certain factors, a car loan application can get rejected. One of the reasons is having a bad credit score. It can reduce one's chances of loan approval by the banks. Before applying for a car loan, shop around, do your research online to get a better deal. Whether it is new car loan or used car loan, visit a comparison website to compare various car loan offers across top banks in the country. Choose a low-interest rate car loan to save up on interest payments. Some banks also offer loan against car.
Before applying for a car loan, it is important to check one’s eligibility of the loan in terms of income and credit score. Here is the standard eligibility criteria set by banks for car loan applicants:
Some banks offer pre-approved car loans for existing customers with just minimal documentation like KYC papers.
Along with a duly-filled and signed application form, it is important to submit valid documents such as:
Prior to submitting the application form, ensure the particulars furnished by you are valid so as to avoid loan rejection on the basis of misrepresented, false or incomplete data.
One can apply for car loan either through the online method or the offline method:
Minimal documentation or paperwork is involved in the online method in comparison to the offline method. Also, banks provide special offers to customers who apply for a car loan online so as to facilitate a digital economy.
In the case of car loan, the car serves as collateral. Therefore, even with a bad credit score, there are chances of a bank or NBFC approving your car loan application. Credit Information Bureau India Limited (CIBIL) is a reputable credit bureau of the country that gathers credit-related data about individuals and companies from banking and financial institutions. Credit score is determined based on the individual’s credit utilisation, payment history, type of credit, etc. This data is used to analyse and evaluate a person's credit score and credit history. When applying for a loan, a person's credit score is taken into account as it represents the person’s creditworthiness i.e., it indicates the repaying capacity of an individual.
Banks approve loan applications of those individuals with a good credit score. A credit score of 750 or above is considered a good credit score while 650 and below are considered bad credit scores. There are ways in which one can improve his or her credit score such as:
If an applicant has a history of numerous debts, late payments or bankruptcy, it indicates that the person is at a high risk of defaulting on loan payments. That is why, banks prefer to disburse loans to those with a good credit history and credit score.
A significant number of the Indian population either has low credit score or no credit history. Even so, with the advent of technology in the finance segment, lenders have introduced new methods by which to provide funding to individuals with bad credit.
Individuals with bad or low credit score can apply for car loans, if not from banks then at least from loan aggregators. However, this move could prove costly as loan aggregators are bound to charge a higher interest rate. So, the logical option would be to improve your credit score before applying for a car loan. Take your dream car home by opting for a lower interest rate car loan.
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