Can I Get a Car Loan with Bad Credit?
Getting a car loan with bad credit can feel like an uphill battle. While traditional lenders often hesitate to give loans to those with low credit scores, this doesn’t mean you’re out of options. Understanding the right strategies can help you get the financial support you need.
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This guide will navigate you through the complexities of getting a car loan with bad credit, highlighting the differences in interest rates and lending requirements you’ll face.
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Can I Get a Car Loan with Bad Credit?
While getting a car loan with bad credit can be difficult, it’s certainly possible.
Bad credit can significantly influence your credit applications. Lenders examine your credit history to check your creditworthiness, which impacts both your loan’s approval and rates. This can certainly lead to generally higher interest rates, making it a challenge to find affordable financing.
However, having bad credit doesn’t close all doors. By presenting a solid financial plan and documentation of your income and debt stability, you can improve your chances of approval. Although it will take a little extra work to find a good loan, with the right knowledge and approach, you can find a suitable option that fits your financial situation.
Ready to turn your bad credit into a stepping stone rather than a stumbling block? Let’s see how.
What is a Bad Credit Score?
A bad credit Score is a sign of low creditworthiness and a higher risk for lenders due to a pattern of late payments, high debt levels, or other financial missteps. It typically means your credit score is lower than average, which can affect your chances of getting a new credit card or loan. Also, it may lead to higher interest rates or less favorable terms.
Here is a breakdown of the range of credit score in the UAE:
| Credit Score Range | Description |
|---|---|
| 300-619 | Bad Credit Score |
| 620-679 | Fair Credit Score |
| 680-730 | good credit score |
| 731 or above | Excellent Credit Score |
As per the table, a bad credit score ranges from 300 to 619. However, in the UAE, most lenders require a credit score of at least 550 for car loans and other credit instruments.
Thus, with respect to getting a car loan with a bad credit score, any score below 550 is usually a bad score.
| Important |
|---|
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Applying for a car loan with a bad credit score is not the same as applying without a credit score altogether. If you’re new to the UAE or have not used any credit product till date, you may not have any credit score. In such cases, you may still get a loan if you have a good salary, a record of timely payment of utility bills, and more. |
How Does a Bad Credit Score Affect Your Loan in the UAE?
While we earlier answered the query of ‘can I get a car loan with bad credit’, it’s worth understanding that a bad score can hurt your credit application.
Here’s how your applications for a car loan with bad credit may fare -
- Limited Loan Options - Banks usually avoid approving loan or credit card applications of applicants with poor scores due to the higher risk. This makes it challenging to secure financing for major purchases like cars or homes.
- Higher Interest Rates - Even if you manage to secure a loan with bad credit, it can often come with higher interest rates. This can lead to more expensive repayments over time.
- Strict Terms and Conditions - You might face stricter terms and conditions on loans with bad credit. This includes shorter repayment periods, larger down payments, or higher collateral requirements to reduce the risk.
| Apply For Car Loan |
How Can I Get a Car Loan with Bad Credit Score in the UAE?
As we saw earlier, a bad credit score doesn’t mean you are stuck with bad deals.
You can, in fact, follow some strategies to improve your chances -
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Check and Improve Your Credit Scores
Checking your credit before you shop for a car loan helps you set up your expectations right. You can be aware of whether you can apply right away or need to work on your score.
You can easily check your credit score for free on Policybazaar.ae.
This way, you can take some time to build your score to qualify for a lower interest rate, which could save you thousands of Dirhams.
But if you need a car right away, you can try out the tips given next.
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Explain Your Situation
You can connect with the concerned bank and explain if there are genuine reasons for your bad credit — unexpected medical expenses, job loss, or any other.
You can state the circumstances that led to your credit challenges and highlight any steps taken to improve your financial situation. Providing context may help lenders better understand your situation and increase the chances of approval.
With proper reasons, you should also emphasise your ability to repay the loan. When you show supporting documents like bank statements to demonstrate your financial position, it can relieve some concerns associated with bad credit.
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Save for a Down Payment
With a larger down payment, there is a chance that you may easily qualify for an auto loan even if you have a low credit score. It also offers you better terms by offsetting higher interest rates and lowering your loan-to-value ratio (loan amount versus vehicles’ value). The more money you put down, the less you’ll need to borrow for the car.
Important: In the UAE, the down payment for a car loan must be at least 20% of the car’s value.
Before applying for a loan, calculate the monthly payment you can afford and the annual percentage rate (APR) you expect. While the mandatory down payment is 20%, you can certainly go higher than that for better terms.
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Prequalify with Multiple Lenders
Prequalification helps you see if you're eligible for a loan and what the terms might be without affecting your credit score. It’s a quick way to find out your options and avoid unnecessary hard credit checks that can slightly lower your score.
Once you’ve been prequalified by several lenders, compare their rates to find the best offer. Afterward, you can submit your documents to get approved. This may involve a hard credit check, but a pre-approved loan shows that a lender is committed to giving you a loan.
With a pre-approved loan, you'll have an advantage at the dealership and can negotiate like a cash buyer.
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Secure a Co-Signer
A co-signer or guarantor can be your trusted friend or family member who agrees to take responsibility for repaying the loan. Having a co-signer with a good credit history and a steady source of income can significantly enhance your loan application. This also helps reduce the lender’s risk, as the co-signer can pay the installments if you can’t.
But remember, the co-signers’ credit score can suffer if the loan is not repaid, even if they don’t own the vehicle.
Tip: During negotiations, having a reliable partner by your side might help you feel more confident. Knowledge and confidence combined may lead to better loan terms.
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Negotiate on Loan Terms, Not Monthly Installments
When looking for a car loan, focus on the loan terms rather than simply sticking with monthly payments. Lower monthly payments might seem appealing, but they often come with longer loan terms, which can end up costing you more overall.
For those with a bad credit score, car loans usually come with higher interest rates and extra fees. A long-term loan with a high interest rate can result in you paying much more than the car’s actual price by the end of the loan.
Instead, aim for the best loan terms — specifically, the lowest annual percentage rate (APR) and the shortest loan term. Make sure the monthly payment fits your budget. Prequalification and preapproval can help you find and compare better loan terms.
Bonus: Double Check the Final Terms
When financing through a dealer, it’s better to confirm the final loan terms before you sign anything. Dealers might give you conditional approval so you can drive away with the car, but be cautious. If the loan terms aren't confirmed, you could end up with higher monthly payments than you expected.
Some dealers may also use low advertised rates to attract buyers but then increase them after you sign the contract. This unfair practice, known as yo-yo financing, is illegal. Always verify the terms to avoid surprises.
What Options Can You Consider with Bad Credit Car Loans?
Other than the above points, you can also consider a personal loan as not every lender accepts a co-signer. A personal loan is another option to finance a car — the only drawback is that the interest rate can be higher than an auto loan.
To weigh the pros and cons of this decision, click here!
Where Can I Get a Car Loan with Bad Credit?
Getting a car loan with bad credit can be challenging, but Policybazaar.ae makes this process as easy as possible for you.
You can compare different loan offers from various lenders and find the best interest rates and terms available. Moreover, you can check your credit score for free and start working on it.
Our platform consolidates all the key details and offers in one place, saving you the time and hassle of jumping onto multiple websites.
Why Get a Car Loan from Policybazaar UAE?
- Quick application processing
- Attractive interest rates
- Expert advice
- Minimal documentation
- 24/7 customer support
To apply for a car loan with bad credit score from the comfort of your home, click here and fill out the form.
Still have some unanswered queries?
Find some of the most frequently asked questions about getting a car loan with a bad credit score below:
Frequently Asked Questions
With a weak credit score but a good income, you can still get a car loan. A stable and sufficient income demonstrates your ability to make regular loan payments.
Making a large down payment on your vehicle is another approach to improve your chances of loan acceptance. If you can afford a down payment, the lender might approve your loan based on your money.
Consider getting a co-signer with a better credit score to help you get a loan. As the co-signer agrees to take responsibility for the loan if you default, it reduces the lender’s risk.
While it is a bit difficult to get a car loan with bad credit, it’s not impossible.
Any score between 300 and 619 is usually considered a bad credit score in UAE.
To apply for a car loan, your monthly salary should be AED 5,000 or more.
