Having a personal vehicle can be difficult because cars are expensive. The best solution to this problem is a two-wheeler. A two-wheeler such as a scooter or a bike can become an important ally for daily commute. Obtaining a two wheeler loan from financial institutions will facilitate the purchase of a two wheeler but before granting loans, banks / financial institutions have a system that validates an individual’s creditworthiness by checking their credit scores.
How Does Poor credit Score Affect Your Two Wheeler Loan?
One of the few reasons banks reject loan applications is the low credit rating (this is the minimum requirement). Below are some reasons for a bad credit rating.
- Previous or Existing Loans: If you have an existing two wheeler loan or have been recently declined a loan application and immediately applied for another loan, there is a major change for rejection of the new loan application. This can further lead to a bad credit rating.
- Late payments: If you do not pay your credit card bills/active EMIs on time, it will negatively impact your credit score
- Credit card bills: Make sure you pay your credit card bills in full every month without delay. The reason is that the amount due is considered expired by CIBIL. A significant accumulation of overdue loans can lower the credit score.
- Missing payments: This is probably the worst-case scenario for your credit score. Failure to pay even one payment can give your overall score a negative rating.
- Multiple credit applications: When you apply for credit from several banks at the same time, you increase the chances of a difficult application. Any negative request can drastically reduce your credit score.
With all of these things in mind, the additional legal information a bank needs for a two wheeler loan includes a mandatory age of 18, regular income and repayment potential, domicile status, bank statement, and KYC details.
Approved Two Wheeler Loan with Poor credit Score
A low or medium credit score can be an obstacle to securing credit. Even if you are in a good position to clear all existing odds and complete your EMIs on time, chances are your application will be rejected due to a poor credit score. Let us look at ways to get approved for your two-wheeler loan with a bad credit score.
- Show proof of income to support loan repayments
You may have a low credit rating but an increase in your salary or possibly an additional source of income may make the lender more favourable to your loan application. Moreover, if you can prove that you have a stable job with a regular income. It also increases the likelihood that your loan will be approved. Keep in mind that you might be subject to a higher interest rate.
- Consider applying for a small loan
Your lender may consider you a high-risk candidate if you apply for a large loan with a low credit score. From the lender’s perspective, your probability of defaulting on the loan is higher. If the loan amount is less, the lender may be more inclined to grant the loan request. In addition, paying off a smaller amount will be much easier.
Apply for a joint loan or get a guarantor
If you have a low credit score, getting a co-applicant or a guarantor with a good credit rating can help you get your loan approved faster. With the authorization of your co-applicant or guarantor, make sure that the KYC formalities are fulfilled as well as the necessary signatures are done on the relevant forms. When the lender sees a co-applicant or guarantor with a good credit score on your loan application, it certainly helps in getting a better deal.
- Correct Errors in Your Credit Report
You may have a hard time getting a loan with a low credit score. However, there may be reporting errors on your credit report. Your file may not be updated with the latest information.
Even though it’s not your fault, errors like this can cause unwanted problems. To anticipate the problem, check your credit score regularly. If you find any errors, be sure to report them to the appropriate authorities and correct them promptly. Ultimately, it will work favourably in increasing your credit score, making you a more worthy candidate for a loan.
- Ask your lender to consider your case with an NA or NH on your credit report
An inactive credit period in the past 36 months or no credit period in the same period is marked as an NA or NH. As a result, you have no credit score on your credit report. Talk to your potential lender and explain why there is a period of credit inactivity. The loan may be approved with a higher interest rate.
While these steps can certainly help you get a two wheeler loan even with a bad credit rating, you still need sufficient funds to pay your EMIs on time.