Credit history and loans go in circles; one is required for the other …. So where does one start. If you need a loan you require a CIBIL score and how is credit score created? It is created due to the already existing loans and the borrower’s treatment of these loans. So are you stuck in a Catch 22 situation? How does one start? Till a few years back there were no credit agencies so loans were given based on personal rapport, references, lender’s discretion and so on. In current scenario the applicant has to meet the car loan eligibility criteria and also have a good credit rating to get a car loan. However in the absence of a credit score all is not lost. Let us look at few options that are available to a borrower.
Getting a Car Loan without CIBIL Score:
Getting a car loan without credit history will definitely be challenging but not impossible. As we said earlier a loan is sanctioned based on many parameters and credit history is one of them; while credit history does impact the decision making for a lender there are ways around it too. A lot of lenders are willing to lend to first time borrowers based on the following conditions and parameters.
While some may actively advertise that they lend without any credit check, some may do it after a little convincing and looking at various parameters. Since a car loan is a secured loan, lenders may be less reluctant to offer loans without a credit history.
- Employment Status: Most organizations these days have tie-ups with banks for salary credit and other financial services like personal loans and credit cards. Getting a service or a product from FIs where your employ has a tie-up will not be tough; thus if you want a car loan and you do not have a credit trail then the FI where your organization has a tie-up could come to your rescue. Even if the company does not have a tie-up, a steady employment record could make up for the absence of a credit score. A steady job or professional status assures the lender of steady income and stability which in turns makes the borrower a trustworthy borrower.
- Income Level: While a credit rating has nothing to do with how much your income is, getting a loan sanctioned definitely has a lot to do with it. Any lender would like to be assured of getting their money back; while intention is important but so is capacity to repay the loan. The lender would like to ascertain whether the borrower is in a position to bear the car loan EMI burden; this will be ascertained by assessing the income flow of the borrower. While a steady income flow is important, so is a sufficient income level. For this the lenders will like to assess the income level of the applicant and ascertain if the borrower will be able to service the debt. The income level which would be acceptable will vary depending on how much the applicant wants to borrow. This in turn will depend on how much he/she has got saved for the down payment and what is the cost of the car.
- Debt to Income Ratio: The next thing we come to is the debt to income ratio. A steady and sufficient income level would be of no use if the applicant has a high debt to income ratio. The ratio between debt and income of the borrower reflects the capacity of the applicant to service additional debt. If one has a steady income flow but is already burdened with debt; which means that he/she is already stretched and is paying too many EMIs. This compromises his/her capacity to bear additional debt burden. Lenders would be reluctant to lend to such an applicant for obvious reasons.
- Amount Saved for Down payment: When lenders look at the CIR of an applicant they are able to assess his/her creditworthiness and intentions too. They are able to understand to an extent if the person can be trusted or not. Another way to assure the lenders about your good intentions is to make a bigger down payment. While lenders have a LTV ratio which defines the maximum loan that can be availed by a person; the rest has to come from the borrower in form of down payment. Making a bigger than required down payment also acts as an assurance to the lender; they are assured of your intent as well as you financial stability.
The above factors can be considered by a lender in the absence of a credit rating to sanction you a taken to sanction a loan also. So make sure that if you avail a loan without a credit score you treat this as an opportunity to make a good credit rating for yourself.
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