Can I Get a Used Car Loan with a Low Credit Score?

Mr Krish works for a multinational company as a data analyst. He recently took out a loan to purchase a used car. The surprising thing about Mr Krish's purchase is that he was able to get a used car loan despite a poor credit score. However, the fact that he availed a poor credit score used car loan does not mean that Mr Krish had defaulted or missed paying multiple EMIs on his previous loan. His credit score is low because he had never taken out a large loan and had once forgotten to pay the EMI on a consumer durable loan. So, if you too have a bad credit score, take a leaf out of Mr Krish’s book and find out how you can still obtain used car loan financing.
 
How to Obtain Low Credit Score Used Car Loan?
 
1. Save for a large down payment 
 
It makes no sense to have a bad credit score and request a 90% LTV on used car loan financing. Applying for a large loan with a bad credit score will result in high used car interest rates by credit score or your loan application might get rejected. As such, Mr Krish advises going for a larger down payment. A larger down payment increases a borrower's involvement, and lenders consider such applications to be low in risk, resulting in faster approval of low credit score used car loans. 
So, what are you waiting for? If you want to get used car loan financing, start planning your savings better so you can make a higher down payment.
 
            Also Read: How to arrange a loan for a pre-owned car?
 
2. Add Co-signer/Co-applicant
 
Are you struggling with poor credit and still want a used car loan based on credit history? If yes, try and add a co-signer. A co-signer/co-applicant is a person whose name appears on the loan agreement alongside yours and who is held financially responsible if you default. As such, Mr Krish recommends that you try to convince one of your family members with a steady income and good credit to sign a loan agreement as a co-signer. However, keep in mind that any missed EMIs will adversely impact the co-signer's credit as well. Furthermore, defaulting on such loans will influence the co-signer's future borrowing capability.
 
3. Go for a Budget Car
 
In order to finance a luxury used car, you must possess perfect credit. It makes no sense to have a bad credit score and still buy a premium used car worth Rs 50 lacs on loan because the lender will reject your loan application. Here, Mr Krish advises that if you want to be the proud owner of a car, you should choose one that is within your budget. He also recommends foregoing additional features like a sunroof and designer wheels to lower the loan amount.
 
When the loan amount is smaller, the financial institution is more likely to sanction it, even if you have a low credit score. 
 
4. Buy Here-Pay Here Dealerships 
 
Nowadays, used car dealerships also offer loans to purchase used cars. All you need to do is go to your preferred dealer, select a vehicle, sign the loan agreement, and drive away in your dream four-wheeler. Sounds great, right? But wait, here is a twist. According to Mr Krish, such loans come with a high rate of interest. While assured funding may look attractive, the truth is that high interest rates are generally associated with high default rates. Such dealership loans may further hamper your credit score. Hence, it is recommended that you use such type of used car loan financing as a last resort. 
 
            Also Read: 10 Advantages of Getting Your Used Car Loan Approved before Buying Your Vehicle
 
5. Shop Around 
 
Every financial institution has its own approach and criteria for determining used car loan eligibility checks. If you search, you may easily find a lender who offers used car loan financing against a credit score that is similar to yours. To save time while researching lenders, Mr Krish recommends visiting the websites of used car loan aggregators. That way, you can quickly identify lenders who provide low used car interest rates by credit score. 

 

 
6. Prove your Worth 
 
Financial institutions undoubtedly approve used car loans based on credit scores. However, this is not the only factor that they consider. They check your income, employment stability, and many other parameters. Therefore, it is recommended that you demonstrate your repayment potential to the lender by providing documentation of your income and employment stability. Once satisfied with these factors, the lender may approve your used car loan financing. 
 
How to improve credit score for used car loans?
 
To improve your credit score, it is recommended that you first know what your credit score is. Always double-check the details related to your credit to avoid any errors. If you find any error in your credit score, file a dispute with the credit rating agency to get it corrected. However, if you have a low credit score due to missed EMI payments, shop for short term consumer durable loans. People with bad credit or no credit can apply for these loans. By paying your EMIs on such consumer durable loans punctually, you can improve your credibility. 
 
            Also Read: Bring Home Your Dream Car with a Second Hand Car Loan
 
To Conclude 
 
While getting a low credit score used car loan is tough, it is not an impossible task. Apart from credit score, if the other factors in your profile are strong enough, you can avail used car loan financing. However, once you are approved for a low credit score used car loan, take advantage of this opportunity to improve your credit score. Once your used car loan instalment payment history improves and your credit score shoots up, it will become simpler to refinance your used car loan or obtain any other form of financing in the near future.