Your credit score is one of the most important factors that lenders consider when you apply for a car loan. It is a three-digit number that represents your creditworthiness, or how likely you are to repay a loan on time and in full. Lenders use your credit score to assess your risk and determine whether or not to approve you for a loan, as well as the interest rate and terms you will be offered.
If you are planning to apply for a car loan, it is important to understand how your credit score affects the process. This guide will walk you through everything you need to know about credit scores for car loans, from how to improve your score to how to apply for a loan and what to expect.
What is a Good Credit Score for a Car Loan?
Credit scores are given by different credit bureaus, such as CIBIL™. CIBIL™ is one of the four authorized credit bureaus in India, along with Equifax, Experian, and CRIF High Mark. CIBIL™ scores range from 300 to 900, and the higher your score, the better your chances of getting a loan.
There is no minimum credit score required for a car loan, but it is always better to have a high credit score. In general, it is advisable to have a score of 750 or above to have a good chance of getting a loan and getting the best interest rates.
How to Apply for a Car Loan with a Credit Score?
- Go to the official consumer credit website where all the types of loan products are available and fill out the car loan application form. You can consider Paisabazaar.com or any other online marketplace.
- Check your car loan eligibility and select your preferences, such as car type, city, brand, amount, repayment tenure, employment status, income, desired EMI, salaried bank account, and personal details. Then click on “View All Offers.”
- Select the most suitable loan offer or call Paisabazaar customer care for assistance.
- Get an instant conditional e-approval as soon as you submit your online car loan application. When you submit your application, we will automatically check your CIBIL score to make sure it is high enough for the car loan you want. Then, we will forward your application to the lender you chose.
Documents Required for a Car Loan Application
Here is the list of documents required for a car loan application, for both salaried individuals and self-employed individuals:
| Document | Salaried Individuals | Self-Employed Individuals |
| Identity Proof | Aadhaar card, PAN card, driving license, passport, voter ID, family card (ration card), utility bill (electricity, water, or telephone), life insurance policy | Aadhaar card, PAN card, passport, voter ID, driving license, ration card, utility bill (telephone, electricity, or water), life insurance policy |
| Age Proof | Birth certificate, school transfer certificate, Std. 10 mark sheet, Aadhaar card | Birth certificate, school transfer certificate, mark sheet, Aadhaar card |
| Income Proof | Salary slips for the last 3 months, Form 16, income tax return documents, bank statement for the last 3 to 6 months | Bank statement for the last 3 to 6 months, proof of business ownership (e.g., office address proof, maintenance bill, utility bill, business registration license), income tax returns for the last 2 years, audited balance sheet, profit-loss statement |
| Signature Verification Proof | Banks have separate forms for applicants to fill up with their signature | Banks have separate forms for applicants to fill up with their signature |
| Proforma Invoice | A proforma invoice containing the price of the vehicle must be submitted to indicate the desired loan amount. Most banks offer up to 95% of the price of the car as a loan. | A proforma invoice containing the price of the vehicle must be submitted to indicate the desired loan amount. Most banks offer up to 95% of the price of the car as a loan. |
Steps to Check Your Credit Score: Free and Paid
There are two ways to check your credit score for free in India:
Through the CIBIL Website
- Go to the CIBIL website and click on the “Free Credit Score and Report” link.
- Create an account or log in to your existing account.
- Enter your personal information, such as your name, date of birth, and PAN number.
- Pay a fee of Rs. 550 to get your credit score and report.
You must be thinking why to go for the paid option when there are a lot many free options available, right?
Well, the CIBIL website is the official website that you can consider for privacy purposes. However, you should not fully rely on third-party websites.
Through Third-Party Websites
Several third-party websites offer free credit scores in India. Some of the most popular websites include:
- BankBazaar
- Paisabazaar
- CreditMantri
- CreditWala
To check your credit score on one of these websites, simply visit the website and enter your personal information. You will then be able to view your credit score for free.
Steps to Download Your Free CIBIL Report
Downloading a Free CIBIL Report is just an easy task. What you need to do is just follow the steps mentioned above for checking the CIBIL Report.
Once your CIBIL report is generated, click on the “Download Report” button.
Your CIBIL report will be downloaded in PDF format. You can open the report and view your credit score and other details. Make sure you have a valid email address and mobile number associated with your CIBIL account. Save the report to a secure location on your computer or phone.
You can download your free CIBIL report once a year. It is a good idea to review your credit report regularly to identify any errors or discrepancies. You can also use your credit report to track your credit progress over time.
How to Improve Your Credit Score
If you have a low credit score, banks may be less likely to lend you money. Here are some ways to improve your credit score:
- Find out what your credit score is.
- Check your credit report for errors and fix them.
- Pay off any debts you owe as soon as possible.
- Make all of your credit card payments and loan payments on time.
- Use less than 30% of your credit limit, if possible.
- Don’t apply for too many new loans or credit cards in a short period.
Reasons for Your Car Loan Getting Rejected
People often get confused when their car loan is rejected, even though they meet all of the requirements. One reason for this is that they have a bad credit score. This means that their score is lower than the minimum required by the bank.
Here are some of the reasons why you might have a bad credit score:
Late payments
If you make late payments on your credit cards or loans, this can lower your credit score. This shows the bank that you are not managing your finances well.
Overdue credit cards
Even if you only pay the minimum amount required on your credit cards each month, the rest of the balance is still considered overdue. If you keep doing this, your credit score will go down.
Defaulting on payments
If you don’t make payments on your credit cards, loans, or overdrafts, this is also seen as bad financial management. This will also lower your credit score.
Rejected loans
If you have a car loan rejected and then apply for another one right away, the second loan is also likely to be rejected. This is because too many loan applications can lower your credit score.
Too many car loan applications
If you apply for car financing from multiple lenders at the same time, they will all request your CIBIL report. This is seen as a negative thing and can lower your credit score.
Do’s and Don’ts for Good CIBIL Score
CIBIL reports need to be updated regularly. You can do this by taking certain steps, such as paying your bills on time and keeping your credit utilization ratio low. There are also some things you should avoid doing, such as missing payments and applying for multiple loans at the same time.
Things to do
- Set reminders to pay your EMIs (equated monthly installments) on time and don’t miss the deadline.
- Keep your old credit cards open to lengthen your credit history.
- Pay your EMIs and credit card bills in full.
- Get loans with longer tenures (the time it takes to repay the loan).
- Check your CIBIL report and score at least once a year.
Things to avoid
- Don’t miss credit card bill payments or EMIs.
- Don’t use more than 30% of your available credit (credit utilization ratio). This can affect your chances of getting a loan in the future and the interest rate you’re offered.
- If you’re looking for a loan, don’t apply for loans from multiple lenders at the same time. This can hurt your CIBIL score.
- Don’t ignore any errors in your CIBIL report. Inaccurate information can lower your CIBIL score.
Also Read: How To Secure A Personal Loan For Self-Employed In India
Can You Get a Car Loan With a Low Credit Score or No Credit History?
Even if you have a bad credit score or no credit history, you may still be able to get a car loan.
Lenders will look at your income and the loan amount you are requesting. They may also ask for a co-applicant or guarantor with good credit.
To increase your chances of approval, you can request a lower loan amount and choose a higher down payment.
Here is a breakdown of the key points:
- A credit score is not the only factor that lenders consider. They will also look at your income and the loan amount you are requesting.
- If you have a bad credit score or no credit history, you may still be able to get a car loan. However, you may need to request a lower loan amount and choose a higher down payment.
- Getting a co-applicant or guarantor with good credit can also increase your chances of approval.
Impact of Credit Scores on Car Loans
The table below explains how your CIBIL score can influence whether you can get a car loan, the interest rate you might be charged, and other important things.
| CIBIL Score Range | Loan Chances |
| 300 – 599 | Getting a loan is hard. If you do, you might get less money but pay a high-interest rate. The bank might ask for things you own like fixed deposits or other stuff. |
| 600 – 749 | You might get a loan if your score is average. The bank will check things like how much you earn and if you have other loans. It might take longer, and you might not get the best interest rates. |
| 750 – 900 | If your score is high, you’ll likely get the loan. It’ll be quick, and you can negotiate for a good interest rate. You might also get special offers like low or no down payment. |
How Do I Avoid A Poor Credit Score?
Here are some reasons why your Credit score is not good, and ways to make it better:
Late or Missed Payments
If you often pay your credit card bills or loans late, it hurts your Credit Score. Make sure to set reminders to pay on time. This will help you get a good credit score for car loans in the future.
Using Too Much Credit
If you use all the credit given to you, it shows you can’t control your spending. Try not to use more than 30% to 50% of your total credit limit. This will keep your credit usage low and boost your credit score.
Rejected Loan Applications
If your loan applications are denied, don’t apply for a new one right away. Getting rejected again hurts your credit score. Work on improving your credit score first, and then apply for a car loan at better rates.
While there’s no specific minimum Credit score for car loans, it’s a good idea to have a score of at least 750 before you apply. This will reduce the risk of loan rejections and help you get better car loan deals.
Things to Consider Before Applying for a Car Loan
Many of you may be planning to buy your dream car these days. It has become easier to own a car with the help of car loans. Here are some things to keep in mind before applying for a car loan:
Check your Credit Score
If it is above 750, you have a very good CIBIL score for a car loan and can easily get a loan at competitive interest rates.
Review your Credit Report for any Errors or Missed Payments
Avoid applying for multiple loans, credit cards, or credit reports within a short period.
Finalize your Budget before Applying for the Loan
This should include the cost of the car, registration fees, insurance premiums, car accessories, and any other related expenses.
Decide on a Loan Tenure that is Convenient for you
A five-year loan will have lower monthly EMIs than a three-year loan, but you will also pay more interest.
Final Thoughts
Before applying for a car loan, consider your budget, review your credit status, and choose a loan tenure that aligns with your financial situation. By taking these steps and being mindful of your credit score, you can enhance your chances of successfully obtaining a car loan with favorable terms and realizing your dream of owning a car.
FAQs
Many borrowers with credit scores of 675 or higher typically secure the majority of auto loans. For new auto loans, most borrowers tend to have scores around 730, although a minimum score of 600 might be accepted. However, individuals with excellent credit often benefit from reduced rates and monthly payments.
Banks typically deem a CIBIL score of 750 or higher as creditworthy, while scores below 650 are considered too low for loan approval. This score is determined by your payment history with loans and credit cards.
According to industry norms, a credit score above 600 is considered good for a car loan, while a score above 750 is highly favorable.
Below 580 is considered poor, 580 to 669 is fair, 670 to 739 is good, and 740 to 799 is very good.
