Yes many people are eligible to get a car finance but no loan, do you know the exact reason behind this? Actually there are several reason for getting rejected for a loan. One might be your bad payment history which may lead down your credit score.
Why Car Finance But No Loan
Any Bank want some security on their loan amount always. They want to ensure that capital distributed as loan will come back along with its interest. So that bank will earn some money on their capital. This is the main income source for any bank or lender. There are two main type of loans generally bank or other NBFC (Non-Banking Financial Companies) offers to everyone. Car finance is also a one type secured loan that’s why its easy to get instead of getting a unsecured personal loan.
Secured loans are those loan which bank take some mortgage as security. Mortgage or security amount is generally more than the amount they give as loan. In any case of person will fail to repay the amount. The bank will recover their amount with interest from the property mortgage as security.
Car finance is also a secured loan, just like the property you mortgage in bank for a loan. The bank who finance this car to person will liable to pay some down payment and rest all payment in easy monthly installment.
The car company will get whole payment from the bank. But the owner and bank have contract to pay and receive amount in EMI. The main registration copy of the vehicle will mortgage under bank authority until the person paid the full amount of car with interest to bank.
In case of any payment default by the person, bank have right freeze the car and recover their capital by selling this car into auction.
This is why you can get car finance easily, but no loan if having bad credit also.
Unsecured loans are those loans which have no security deposit or mortgage for that loan under bank. Just like a personal loans are the most unsecured loans, because if the person have payment default bank have no right to sell anything to recover their amount.
That’s why bank are always check credit history and credit score of applicant to make belief of their recovery. Credit card is also one unsecured loan amount for banks. Because if a person willingly or unwillingly failed to pay his credit card dues on time, bank will apply charges regularly.
In case the person is not able to pay their huge debit then its becomes default in the bank. Bank will report his payment history to the credit reporting agencies like Experian, Trans Union etc.
These credit reporting companies will reflect people credit history and payment behavior in the credit report. They reduce defaulter’s credit score.
So when he again apply for any type of loan, the next bank will check his credit score, now its all depend on the lending bank if he satisfy the required credit score or not.
Some banks will also provide car finance to the bad credit people also. So this is why you can get a car finance but no loan.
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My self Steven Anderson is a investment banking instructor with over 15 years of experience teaching analysts, associates and senior management within financial institutions how to be more effective at their jobs and write about financial issue due to bad credit score in various cities for Techoko.com. For more information you can contact with me directly at facebook, Twitter & you can follow me on Instagram.