How to Buy a Car with a Low CIBIL Score: A Guide for Young Professionals

For many young professionals, the dream of owning a car can seem unattainable, especially if you have a low CIBIL score. However, with careful planning and understanding the financial aspects involved, it is still possible to make it a reality. Let's explore the steps and financial considerations required to buy a car like the Mahindra XUV 700 despite a lower credit score.

Understanding CIBIL Scores and Their Impact on Car Loans

Firstly, it's important to understand that financial organizations often do not offer loans to individuals with low CIBIL scores due to the perceived risk. However, for acquiring a car, particularly an XUV 700, the impact of a low CIBIL score is somewhat mitigated. Auto loans are considered secured loans, meaning the car itself acts as collateral, reducing the overall risk for lenders.

Improving Your CIBIL Score and Securing Financing

If you plan to buy an XUV 700 or a similar car and have a low CIBIL score, here are the steps to consider:

Resolve Outstanding Debts: Begin by settling any pending dues to improve your CIBIL score. Even if immediate financing is not possible due to a low score, resolving outstanding debts can show potential lenders that you are responsible and capable of managing your finances. Save Actively: Continue to save a portion of your monthly income. With a savings of around 40,000 INR per month, you have a good buffer, but you may need to significantly increase your savings to cover the down payment. Consult Bank Representatives: Visit the Mahindra dealership and consult with the bank representatives. They can provide detailed advice on the best EMI structure for your needs and the available loan options.

Calculating the EMI Structure Using a Simple Formula

At 23 years of age, you can afford to allocate a certain percentage of your post-tax income towards car payments. Here's a formula to help you determine if the XUV 700 is within your financial reach:

Age Factor: At 23, you should ideally spend no more than 21 1/5 of your post-tax monthly income on car EMIs. Margin and Upfront Down Payment: You should allocate no more than 40% of your total savings to the upfront down payment. Any margin above 3 lakhs should be considered for the loan amount.

Let's use an example. If the on-road price (ORP) of the XUV 700 is 25 lakhs:

The maximum loan amount would be 20 lakhs 800,000 INR (20.80 lakhs). The down payment or margin would then be 5 lakhs (25 lakhs - 20.80 lakhs).

Calculating the EMI for a 5-Year Loan

Assuming your post-tax income is 208,000 INR per month, your EMIs could amount to 43,500 INR per month. This is a substantial amount, but within your potential spending limit. Here's a breakdown based on your savings and income:

Post-Tax Income of 208,000 INR: An EMI of 43,500 INR means you can comfortably afford the car. Marginal Savings of 10 Lakhs: With a 10-lakh saving, you can afford the car within your savings. Alternative Financing Options: Option 1: Take a loan of 6.85 lakhs and receive 18.15 lakhs from your father if he is financially stable. Option 2: If your salary is 2.1 lakhs per month and your savings are 10 lakhs, you can proceed with the purchase. Option 3: Opt for a car costing between 8.50 to 9.00 lakhs on road, such as the Mahindra XUV 300, which is within this price range.

Considerations for Young Professionals

While you may be tempted to buy a car like the XUV 700, it's crucial to consider your overall financial situation over a longer period. Young professionals should ideally avoid such heavy liabilities and focus on modest vehicles, such as a bike or a car in the 2.5 to 3.5 lakh range. However, if you feel you have a stable and reliable source of income and savings, it's possible to make this purchase.

Again, remember to do your financial calculations and consult with banking professionals to ensure you are making the right decision. Wise financial planning can help you achieve your dream of owning a car without compromising your long-term financial security.