Does Low Credit Stop You From Getting A Car Loan?
If you have a poor credit score, you may be already aware of the impact it has on your ability to borrow money. Car finance is no different, and due to the large amount being borrowed from the lender, it can be harder to get approved if you are a higher risk. Therefore, persistently take steps to improve your credit.
However, having a low credit score doesn’t have to mean it’s the end of the road when it comes to buying a car on finance. Many lenders are instead focusing on affordability rather than previous credit behaviors in order to make finance more accessible to drivers.
What Is The Meaning Of Credit Scores?
A credit score indicates the creditworthiness of an individual. To put it simply, it calculates the ability of a person to repay an amount borrowed by him. This can be in the form of loans or credit cards. A person is usually ranked between 300 and 900 as his credit score. The higher he scores, the better his chances of securing a car loan.
While there is usually no minimum score for getting a car loan, one should not score below 600. This varies from one individual to another, as well as their respective credit scores. As per the industry standards, any score above 750 is extremely favorable, and they are most likely to get any kind of loan instantly.
How does credit score affect car finance?
When you apply for finance, you will need to meet the lender’s eligibility criteria before you can be considered for a loan. Each lender will set their own criteria and may consider things such as income, credit score, employment status, and license type before they offer you a deal.
Credit scores are a popular way for lenders to assess how likely you are to pay your loan back on time, based on your previous financial habits. A good score usually indicates you are able to meet the payment schedule of previous loans or credit and have a long history of managing your finances properly.
A low credit score can increase the risk to the lender. If you have a bad credit score due to missed payments, defaults on your credit file, or high levels of debt, the lender may decline your finance application. You are more likely to default on future payments when your score is low.
Lenders will run a credit check on your credit file when you apply to find out what sort of credit situation you are in. Pair that will your personal details, they then make their decision whether they want to offer you finance or not.
Is it possible to get a car loan with bad credit?
People with low credit scores could get access to car finance approval. In some cases, it may depend on the lender you apply with, as there are bad credit specialists who may be better suited to your situation. If you are lucky enough to receive a car finance approval, you may be offered a higher interest rate.
Lenders use higher rates to reflect the level of risk and protect themselves if you fail to pay back your loan based on your previous behavior. Whilst bad credit car finance can be possible, it can be a good idea to work on your credit score first to help get you more opportunities for approvals and also a better interest rate to make your car finance more affordable.
How to improve your low credit score:
Rebuilding a bad credit score can take time and effort, but the benefits can be endless! By creating new financial habits and reducing debt, you can see your score sore to new heights and get better finance rates.
- Pay on time. One of the easiest ways to better your credit score is to pay your current bills on time and keep on top of what you currently owe. If you’re struggling with any of your payments, you should never miss a payment as it can have a detrimental impact on your credit score. Instead, speak with the lender and explain your situation to see how they could help.
- Lower your debt. Having a lot of debt can make it hard to afford to take on any new credit. Using too much of your available credit also affects your credit score. You should try to reduce as much debt as possible before applying for car finance and keep your credit usage below 30% of your available limits.
- Reduce credit applications. When you apply with multiple lenders who perform a credit check on your credit file, your credit score can take a hit. When applying with lenders, you should try to stick to a soft credit search for car finance instead, as this type of search won’t affect your credit score.
Steps To Apply For An Auto Loan
Basically, there are two main methods of applying for an automobile loan. The first is online or digital means, and the second is offline. Let’s discuss both of them in detail:
This comprises submitting an online vehicle loan application either through the bank or any third-party website. You need to fill out this form and submit it. However, a few other documents are also needed, like ID proof, age proof, income and address proof.
In the offline method, a person has to visit the bank branch physically and then apply for a car loan. The bank executive is always there to help him out. They will verify the documents and then either reject or accept the loan application. As far as loan approval is concerned, the credit score is an important factor.
The moral is that even if your credit score is not the only determining factor in getting a car loan, it surely is an important one. Now that you have a clear idea about a low credit score make sure to maintain it. After all, your dream car is awaiting you!
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November 24, 2021