December 3, 2024 · 16 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?
Generally, score of 750 and above are considered to be good CIBIL score for loans and money lending. It demonstrates a high level of your creditworthiness. In simple words, it will tell the lenders of your ability to repay the money. Any value between 600 and 750 is also considered to be good though you can’t avail the benefits of the score of 750. However, any score which is below 600 will be considered as a bad CIBIL score.
This score will convey that you’re less trustworthy and less likely to repay the amount. Even though you’re permitted with a loan and money, you will be paying high interest due to your lower CIBIL score. Therefore, getting a car loan for a low CIBIL score will be a little challenging for you. However, this blog will tell you about how to get car loan with low CIBIL score. You will learn the best practices for it.
A low credit score can affect your car loan in multiple ways. It might range from higher interest rates to rejection of loan approval. Here are some of the factors that are affected by a low credit score:
In some cases, the car loan might get rejected due to its low credit score. This is because as per their conditions, a low score refers a high risk of non-payment of the money.
Even when your car loan gets approved for a lower credit score, it comes with lot of charges and discomforts. One such is the imposition of high interest rates for the risk associated with the low score.
When your credit score is lower, you might not be able to get the expected loan amount. It will be approved with smaller loan amount than what you have requested.
Another risk of low credit score for a car loan is its shorter repayment time period. This makes you to pay the amount more frequently than the normal loan’s repayment period. It might even increase your monthly payments (EMIs).
Since a low credit score indicates high risk, your loan might be approved with a co-signer. It means that the co-signing person will be responsible if you’re not repaying the amount on or before time. Of all the above, you can avoid such negativities if you increase your credit score.
Here are the simple steps to increase your chances of getting a car loan without CIBIL approval:
1: Apply with a co-signer or guarantor who has a strong credit score background.
2: Show your steady flow of income and employment stability.
3: Don’t apply for multiple loans at the same time.
4: Choose a less expensive car for your loan and it might increase your chances of loan approval.
5: Try to increase your credit score before applying for the car loan. For that, you can payoff the outstanding debts, avoid missed payments and most importantly, make payments on time to maintain a good CIBIL score.
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
Yes, you can try getting a car loan without a CIBIL score. Since it generally includes your CIBIL score, now it won’t be applicable. You need to check with other sources and show it to your lenders. Those can include your:
1: Income
2: Employment stability
3: Bank statement
4: Co-signer
With these proofs, you can demonstrate your ability to repay on the destined time period.
Non-Banking Financial Companies (NBFCs) and FinTechs are very popular for providing car loans for people. Because they have many tools that can help them to asses people’s ability to repay the loan amount other than the CIBIL score. Usually, NBFC car loan with low CIBIL score use alternative credit assessment tools like digital data and Machine Learning to check and predict the risk of providing the loan for people with low credit 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.
The minimum CIBIL score required to approve your car loan is 700. Anywhere above this score will help you in getting the approval quicker and with simple necessary steps.
Yes, you can get a car loan though your credit score is below 600. However, it comes with some strict challenges like higher interest rates, lesser loan amount, shorter repayment period and more.
There are several NBFCs and banks that offer car loans with low CIBIL score. For banks, you can check with your local banks. For NBFCs, you need to check if they are registered with Reserve Bank of India (RBI). If so, you can check the available options for car loan. Popular NBFCs include KreditBee, Bajaj Finserv, MoneyTap, and more.
Yes, if you have a bad credit score, you might have a higher interest rate. This is because lenders will find it difficult to assess your creditworthiness and trustworthiness in providing the car loan without CIBIL score. You can try to increase your CIBIL score to avail normal interest rates.
Here are the steps you can follow to improve your chances of loan approval with poor CIBIL score: you can choose for a larger down payment, have a co-signer who has a good credit score, choose a less expensive car, maintain a stable income or employment history and try reducing your existing debts.
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