I had a credit card in the past and I defaulted, then I settled with bank (done back in 2011), I was wondering if this will prevent me to get a car loan now. If not, what will be the way out of this situation?
Yes it does impact possibility of getting loan. Your credit history is recorded with CIBIL (a credit rating agency). If there is default, the score goes down. Even when the settlement is done, the score gets damaged.
However, banks look at the credit score to evaluate the eligibility of loan. If the score is better than certain threshold, you will get loan. If not, you have to wait for some time and improve the credit score.
Additionally, banks differ on loan criteria. Hence even if one bank refuses you loan, don’t lose heart and go to the next bank. They may give you loan. Default may also raise the interest rate for you. Hence your EMI may be more.
The best solution is not to default on the credit. It creates extremely bad impression on the banks and goes against you. Unless you are sure you can live without loan (which is a noble idea), don’t default, neither in terms of time nor money.
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Defaulting on your Credit Card payment reflects poorly on your Credit Score. Moreover, lenders don’t look upon settlements favourably. Also, Credit Card payment defaults will be mentioned in your Credit Report.
However, this is not the end of the world. Some lenders may not offer you a Car Loan based on past defaults, while others might offer you a loan at a higher rate of interest as a way to hedge themselves against a possible default in loan repayment. A good way to go about getting a Car Loan is to first check your Credit Score. You can check your Credit Score at BankBazaar for free. If you have been paying your dues consistently in the recent past and have shown signs of good money management, it should have had a positive effect on your Credit Score.
It would also help to tell the banks you are applying at about any past Credit Card defaults in advance while stating your reasons for defaulting. This way you can identify which bank will be willing to extend a Car Loan to you. Remember, each rejected Car Loan application will hurt you Credit Score.