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Will bad credit tow away your car dream?

By Rajiv Raj
Last updated on: December 13, 2015 10:08 IST
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Are your car dreams shattered because of a bad credit score? Here's help

People who cannot boast of a great credit history, calm down because all is not lost. You may not have it easy like other car loan seekers with good CIBIL scores, but it's not impossible either.

Read on to know how to go about getting a car loan even when the lender is frowning at your CIBIL report.

1. You can start immediately

To begin with, start working on your credit karma. Yes, there is such a thing. (Pun intended) Be disciplined about following the repayment schedule and pending dues. Work in this fashion and your CIBIL score will definitely see an improvement. Get that organiser out and mark and save EMI amounts, every month.

2. When the report gets real

Many a time, it so happens that we perceive ourselves as borrowers with a not so cool CIBIL score. Wherein, in reality we may not have the real numbers in hand. When we approach lenders with that perception, negotiation takes a back seat. Chances of walking home with an expensive deal and unwanted terms and conditions, increases.

Hence, it is very important to actually get the report and check the scores. There is a possibility that, it may be better than you thought. In which case, good for you!

3. Analyse the report

Get the magnifying glass and read your CIBIL report! Do not shy away from getting an expert guidance to understand how the CIBIL score can be improved. Various factors contribute to building the CIBIL score and it is important that we are aware about it. Ability to read and understand the report helps in many ways.

You will be able to spot and rectify errors, if any. Also, improving the CIBIL score will be easier when you know what builds the score.

4. Be smart when you shop

Now that you know what exactly your report reads, errors, if any, are fixed, it time to start loan shopping. When approaching lenders, for an auto loan, do your research first.

Every time, a lender pulls out the CIBIL report for a prospective auto loan or any other loan borrower, the tag is visible to others. Too many inquiries on the file can adversely affect the lenders decision.

5. That shiny car

If you are going to avail a car loan, brand new is the way to go for your choice of vehicle. Loans for pre-owned vehicles work out to be more expensive than that for a new vehicle. Unless of course, you got a really good deal on a pre-owned vehicle.

6. Decide what you want and stick to it

Car dealers often work their salesmanship magic to lure prospective buyers into going in for easily available car loans, at exorbitant rates, designed especially for customers with bad credit. Though it might be tempting, steer clear of such deals. They work out way too expensive in the long run. Sticking to a pre-decided budget is the right thing to do.

7. Do we really need those add ons?

Okay, there is no end to the add ons! Rustproof coats, high end stereo, leather seats, paint protection, the list goes on. Do not decide to go in for these choices, on the spot. Let your research guide the choice and not impulse or the sales guys at the showroom! Agree for add ons only if you are convinced that you need it.

In conclusion, bad credit history does not mean that your car dream is shattered. Do your research, plan and get organised before approaching lenders. Getting that nod for a loan and the brand new car will not be far, we promise. Of course, you can take us for a spin and thank us later!

Photograph: Vann Piazza/Creative Commons

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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Rajiv Raj