A good credit score is always perceived as the only way to secure any loan, including an auto loan. But sometimes, people with poor credit scores may require an urgent auto loan and might find it difficult to improve their scores instantly. Fortunately, by following certain simple yet effective strategies, an individual can get an auto loan approved despite having a low credit score and without having to make a down payment.
1. Find a co-signer
A co-signer is someone who promises to repay the loan amount to the lender if the primary borrower is unable to do so within the specified timeframe. If the co-signer’s credit report is good, the primary borrower stands a higher chance of auto loan approval.
2. Consider loans with higher EMI amounts
Buying a vehicle without a down payment requires one to go for higher equated monthly installments (EMI). This way, the auto loan approval process becomes easier. That being said, one might have to bear the brunt of higher interest rates. So, borrowers should be prepared to pay higher interest if they opt for auto loans with higher EMIs. Comparing the interest rates of different institutions and choosing higher EMIs with the lowest interest rates can help one go for the relatively cost-effective option.
3. Pay by credit card
One of the biggest advantages of credit card payments is that they are a win-win for the buyer and seller. This is because when a person pays by card, the amount is immediately credited to the vendor’s account but not debited from the buyer. That is why most auto dealers accept credit card payments as down payments. Also, since credit cards have flexible EMI options, one can choose to pay off larger amounts in monthly installments. But one should know that credit card payments do involve additional fees; nevertheless, paying by credit card is a better option than making a hefty down payment.
4. Look for a co-borrower
Finding a co-borrower can also increase one’s chances of auto loan approval, but this depends largely on the co-borrower’s credit report. If the co-borrower has a poor credit history, lenders may not approve one’s auto loan easily. On the bright side, if the co-borrower’s credit score is high, the process becomes more hassle-free. But one should remember that if one is unable to repay the loan amount within the decided timeframe, the co-borrower’s credit score is also likely to drop. So, it is important to discuss a systematic auto loan repayment strategy with the co-borrower well in advance.
5. Try to boost credit score
If it is possible to wait a few months before taking an auto loan, one should utilize this time to boost one’s credit score. For example, one can try to avoid delaying credit card payments or improve one’s credit utilization score within this time. While one’s credit score can’t be boosted instantly, even a slight improvement can increase one’s prospects of getting auto loan approval.
6. Take a personal loan
If one has bad credit and wants to buy a car without making a down payment, taking a personal loan that covers the vehicle’s total amount is another option one must explore. Since personal loans are 100% collateral-free, these might be better options if one has no assets to offer as collateral for an auto loan. The strategy here is to borrow an amount marginally higher than the vehicle’s total cost and utilize the remaining amount for other purposes. But these loans may eventually be more expensive than credit card payments. So, if possible, it is better to opt for credit card payments than take a personal loan.
7. Compare minimum credit requirements of different lenders
Different lenders may have different credit requirements, so it is important to compare the minimum credit requirements of lenders before shortlisting one. Some lenders may have a minimum requirement that isn’t much higher than one’s credit score, so with such lenders, one can be assured of guaranteed auto loans despite bad credit and no down payment.
8. Present evidence that one can repay the auto loan
Borrowers with low credit scores should convey to lenders any increase in their income levels, additional income sources, etc. This will help convince the lender of their ability to repay auto loans. For example, one should inform the lender about a recent salary hike or promotion they may have had, a property they have recently rented out, etc., so that the lender is assured that the borrower can pay back the money.
9. Check for errors in the credit report
If a person’s credit report has errors, their overall credit score may dip. For example, if the outstanding credit balance is wrongly stated, it can bring down one’s credit score considerably. So, to avoid any hassles, one should check for such errors in their credit report beforehand and get them rectified before applying for an auto loan.
