Your Credit Score and Your Car Loan

If you’re in the market for a new car, you probably have a couple numbers on your mind: the mileage, the price of the car and the monthly payment.

But the one number you may not not be thinking about that could seriously impact how much you pay for your new ride? Your credit score.

Unless you’re paying for a car with straight-up cash, you’ll like have to shop around for a car loan. And your credit score will impact what kind of rate you can get on your auto loan – or even whether you’ll qualify for a loan at all.

                        

Just how does your credit score impact your auto loan? Like other loans and lines of credit, a good (or great) credit score means you’re more likely to qualify for a good (or great) interest rate on your loan. The better your credit score, the better your interest rate and the less money you’ll pay over the life of your car loan.

On the other hand, if you have not-so-good credit, you may be stuck with a higher interest rate and pay thousands of dollars more over the life of your auto loan.

And if you have really poor credit, you may not qualify for a car loan at all.

But while good credit is important for securing a good rate on an auto, even a good credit score doesn’t necessarily guarantee the best interest rate on the market. If you’re thinking of getting an auto loan through your dealer, the dealer may not offer you a preferred interest rate (they tend to make money by charging higher-than-normal interest rates). So regardless of your credit score, it’s always smart to shop around for rates on auto loans before you head into the dealership.

Since, your credit score is such an important piece of the overall cost of your car, it’s good to know what kind of number you’re dealing with before you head out to buy a car. Before you start to shopping around for the car of your dreams or start the process of negotiating rates on an auto loan, check your credit score and your credit history. You’ll have a much better sense of the types of interest rates you’ll qualify for and a better estimate of the overall cost of the car.

If you think that your credit score may be too low to qualify for a decent car loan, talk to your local bank or credit union about their auto loan options. You may be more likely to qualify for an auto loan at a financial institution where you already have a relationship, since your bank or credit union will likely consider other factors besides your credit score in your car loan application process.

Finally, if possible, consider waiting to buy a car until you can boost your credit score or save up money to make a larger down payment – both of which will not only help you qualify for a better car loan, but will save you more money in the long-run, too.

Source: Secondary

Can a car loan be rejected?

In today’s modern life, every individual thinks to have the best for himself and his family. To give his family the best of everything, they work day and night. An individual first tries to get a safe shelter for his family and then other luxuries. Now luxury includes good interior, expensive clothing and of course a means of transportation i.e. a car.

In the present time car has become necessary for every individual, rather be a salaried person or a businessman. Every individual wish to provide an easy mean of transportation for his family. Earlier it was quite tough for every individual to get a car, but now a days due to easy financing options provided by financial companies have made it easy for the individuals to get their vehicle easily.
 
But can a car loan be rejected? Does an individual have low credit score affect his decision to get a car loan?
 
Yes, even a car loan can be rejected. Mr. Ajay, a salaried individual applied for a car loan and it got rejected.
 
Mr. Ajay is IT professional. Being an IT professional had a decent salary. As he had taken a home loan which was currently continued, could not get a car by full payment. So he applied for a car loan. Looking at his salary, it was easy for Mr. Ajay to get approved for a car loan. But he was shocked to know that the financial institutions had rejected his loan.

But even after having a decent salary, why was the loan application of Mr. Ajay rejected. The reason behind denial of loan stated by the financial institutions was “Credit score of Mr. Ajay was low, due to which the loan application was being denied.”
 
Credit Score? Mr. Ajay had never heard of such word. But can this credit score be the reason for denial of a loan?
 
Credit score is basically a three digit numerical figure which ranges from 300 to 900. This score is generally rates an individual as per his credit history. Generally a credit score of 700 and above is considered as a good score.
 
Credit history is the snapshot of past and current credit relationship of an individual. It states whether the individual has been consistent in making all his payments. Credit history nowadays has become an important part of finance. But people are not much responsible as they should be which can make their credit history poor.

These credit scores and credit history of an individual are calculated by credit bureaus. The banks and the financial institutions provide all the information of every individual to these bureaus to check their creditworthiness. The major credit bureaus in India are CIBIL, Experian, Equifax and High Mark. Every bureau has a different method of calculating their score. Based on the score calculated by the bureaus, banks and other financial institutions check the creditworthiness of individual.
 
After knowing everything about credit score and credit history, Mr. Ajay felt that all these are very important aspects of finance for every individual.
 
Mr. Ajay realised the truth that individuals with bad score and poor history would face rejection in their each financial attempt. Banks and financial institution will be able to provide financial help to such individuals. As these individuals will gain trust of these institutions as their history is poor.
 
Now where there are many individuals who have low credit score and poor credit history, these people need someone who can assist them to get out of such situation and improve their finances. Credit repair companies are those institutions are those companies whose aim is to help all the people to restore their finances.

Pointers On Things To Look Out For Before Applying for Car Loan

Car loans can be deceptive. It may seem like you’re easing the burden by paying in small chunks, but you could end up paying a lot more. We give you pointers on things to look out for before applying.

Buying a car on a finance scheme gives buyers the liberty of not having to invest a large chunk of their savings in a single investment. What’s more, finance schemes are available on almost every car on sale here. 

Finance companies offer loans of up to 90% of the car’s value, or in some cases, even the entire amount, depending on the repayment scheme and the model of the car. Our advice would be to pay as much as possible in terms of downpayment, so that the amount you return over the years (with interest) is minimised. A downpayment is the initial payment made when the car is financed, whereas the remaining amount is paid in small chunks, called instalments, over a period of time.

A car loan is, however, a double-edged sword. For starters, while it does allow you the flexibility of paying the overall amount over a certain period of time, one must keep in mind that you will have to pay back much more to the bank. As an example, on a loan of R6 lakh at an 11% rate of interest, you will have to pay back approximately R36,000 for every lakh borrowed over a three-year scheme or R60,000 over a five-year scheme.

It’s also worth noting that some loans will be offered on the ex-showroom price of the car. It’s easier on your pocket if you negotiated with the bank and got the loan based on the on-road price, as the loan will cover registration charges, insurance, road tax, and a few other costs. Also, some banks may have a really large processing fee, but if your credit history is clean, it’s very likely that you’ll get a waiver on your processing fees.

Listed below are the various parameters you should be aware of before applying for a car loan.

Eligibility & credit history

Banks set some criteria that need to be fulfilled by the loan applicant before a loan is granted. The bank verifies your income statements for a certain duration before deciding on the loan amount they deem fit to fund. They also go through CIBIL (Credit Information Bureau India Limited), which maintains records of your loans and credit card transactions that are submitted to the bureau every month by banks and credit card companies. Based on these records, they generate a CIR (Credit Information Report) via which a credit score is generated. 

Generally, a credit score of more than 700 is considered good, and makes a strong case for getting the car loan sanctioned.

Rate of interest

One of the most important factors to consider before applying for a car loan from a particular bank is the rate of interest, as it can decide your instalment amount and the total amount you will be paying above your borrowed sum at the end of the loan tenure. Interest rate charges differ according to the duration of the loan and the type of interest scheme chosen. This can be classified into two types—fixed and floating. Fixed interest rates remain constant during the tenure of the loan, whereas a floating interest rate changes according to the trends in the market. To play it safe, opt for a fixed interest rate loan.

Public sector banks generally offer lower rates of interest to the tune of 10.1-12%, with loan tenures of seven years maximum. On the other hand, private banks offer loans at a higher rate of interest of around 12.5-15%, with the advantage of having less documentation required and better service quality. Most of the loans offered nowadays are of the reducing balance type. In this scheme, as you pay the EMIs, your principal amount decreases and interest is levied on the remaining reduced amount and not the entire principal sum.

It’s also worth noting that having a long-standing relationship with a particular bank can get you good offers. Car loans are also customised according to car models; popular ones generally get the best loan offers as compared to slow selling models. Get all the options on the table before selecting the right one that meets your requirements and expectations.

Package deals

A convenient option is to take a car loan from the purchased car’s dealer as they have bank representatives or tie-ups with banks to offer lucrative deals as part of a package that includes loans, insurance waivers/discounts and car accessories. Dealers earn a commission on the items they sell, but sometimes, a little higher interest rate or insurance package maybe negated by the accessories offered free with the car. It’s better to evaluate the options from the dealer’s side, as well as directly from the bank or insurance company to ascertain the best deal before taking the plunge.

Avoid penalties

An important factor to consider when choosing a bank loan is foreclosure, which, simply put, is the closing of a loan earlier than agreed by paying off the remaining debt. On a recent ruling by the Reserve Bank of India, a verdict was passed wherein prepayment (making a payment that’s more than your regular EMI, hence reducing the principal amount that has to be paid back) penalties for loans that have been purchased on a floating rate of interest will be waived. If a foreclosure of the loan is on the cards, be prepared for high foreclosure. A penalty for the same is waived if the next loan is purchased from the same bank after the closure of the earlier one. Some banks also do not allow you to foreclose before a certain period.

Other charges

Bank loans come with other charges like processing fees and late payment fees. Some banks charge a flat processing fee while others charge a percentage of your loan amount as processing fees. A late payment charge, generally to the tune of 2%, is also levied on the EMIs. These charges, although minor in number, should be evaluated as part of the decision making process. As an example, on an EMI of R10,000, and with a 2% penalty fee charged, your overall EMI for that particular month would be R10,200.

It’s clear that there’s a fair amount you should be aware of before considering a car loan. Different banks offer varying loan rates in an attempt to lure customers, so it’s important to consider these aspects before zeroing in on a finance scheme.

It’s important to remember that CIBIL maintains records of your credit history, based on which a credit score is generated. This will determine how credit-worthy you are, and the better the score, the better your chances are of getting a loan amount required by you approved.

What’s more, a long-standing relationship with a bank can also go a long way in helping you get a finance scheme that suits your needs the best, with little documentation required.

Source: Secondary