Chances of Getting Auto Loan
In India, thousands of people apply for auto loans every day, but not everyone’s loan application gets approved. Being rejected for a loan is frustrating as sometimes you don’t even know the reason for your rejection. There can be many factors that could be the cause for the auto loan rejection like current job status, errors on a credit report that has your false information, invalid driving license or not being able to provide essential documents such as address proof, proof of income, etc. Whatever be the reason for your loan rejection, you should not lose hope as there are many ways to increase your credit score which ultimately will help you to get your loan approved.
Here are some steps that you can follow which will improve your chances of your loan application being accepted.
Review Your Credit History
The first step is to check and analyze your credit history. Take out the credit report, so that you can analyze your credit history in detail. Your credit history plays a vital role that determines how easily your auto loan application gets approval. Sometimes, there are errors in credit reports that spoil the chances for your auto loan approval. So, you need to make sure that there is nothing erroneous information present on your credit report that negatively impacts your auto loan application.
Check your eligibility
You should check the eligibility conditions before applying for an auto loan. You may know whether you stand a chance for an auto loan by checking the eligibility conditions online. The auto loan calculator can really be helpful when you have no idea of the loan eligibility conditions.
Arrange Necessary Documents and Down Payment
The lender will ask for necessary documents to file your application for an auto loan. Some of the necessary documents are income proof, bank statements, monthly bills, ID proofs, and PAN card. These documents will form the basis for your evaluation that will help lenders to decide whether to process your auto loan or not. The lack of necessary documents may raise the probability of your loan application rejection. The more documents you have, the better the chances will be of your loan approval.
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A down payment is a type of payment typically made in the form of cash during the purchase of an expensive goods or services. The payment is a small percentage of the full price of the goods or services being purchased. Some banks and NBFC companies expect you to pay around 15 to 20 percent of the total value of a vehicle as down payment, while the rest of the amount is financed by the bank or the NBFC company. So, it is advisable that you calculate the minimum down payment of the vehicle being purchased. You must ensure that you have the required funds in place before you apply for auto loan, which otherwise would lead to your loan rejection and some embarrassment.
You could refer to bank’s website to know more about the list of required documents and the minimum down payment required to buy the vehicle. Generally, if you pay a hefty down payment, you might get a low auto loan interest rate. Also, a hefty down payment will have a positive impact to convince a lender in your loan repayment ability. So, try to aim for a 20 percent down payment which will also help to fetch you lowest auto loan rates even if you have an average low credit score.
Improve your credit score
Credit or CIBIL score forms an important part of car loan eligibility which is a deciding factor for your loan approval. This score denotes the loan repayment ability of an individual. If you miss out on your dues or your monthly EMI’s, then you credit score goes down. The best antidote to a low score is to pay your dues on time. A score of 750 & above will help you to get loan approval quickly. Also, the advantage of having a high credit score is that you will have a low rate of interest on your loan. A significant way to improve your score is to increase your credit card limit. In fact, you can ask your bank to raise your credit card limit, which will have a positive impact on your score but do not utilize the whole limit. On the other hand, taking a refinance auto loan will bring down your score.
Consider adding a Co-signer
A co-signer is an individual who pledges to pay back the loan to the lender in case you are unable to pay off the debt. A co-signer could be a parent, a close family member, or a friend.
A lender may ask you to add a co-signer in case you have a bad credit score or if the lender does not have the confidence in your loan repayment ability. However, the co-signer must meet certain financial criteria like a good credit score in order to be assigned as your co-applicant.
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The fact that having a co-signer can benefit both you and your lender. For example, having a co-signer gives the lender an added assurance that the loan will be repaid in case an individual faces some problems like job loss, financial crisis, etc. For a borrower, adding a co-applicant can bring down the rate of interest which will save some money. Being someone’s co-signer comes with some risks like late payment of dues, which will bring down the credit score of both the lender and the co-signer. Therefore, it is important that you have an honest conversation with your co-signer and inform them the risks involved before making them your co-signer.
Select the right lender
If you do not have an excellent credit score, then you should research on lenders. Even if you have a low credit score, still you can qualify for an auto loan for some lenders. Some lenders are more likely to process your loans while you are trying to improve your credit score. So, you should compare among all lenders online first, as this will help you to grab the best deal on your auto loan.
At the end…
Hopefully, these effective ways will be applicable for you too and you will be able to boost your chances of getting an auto loan.