Most Indians apply for car loans as purchasing cars is a dream of every Indian. The Indian population is one of the most urban populations in the world. And most of the population lives in cities, so the demand for cars is much higher in them than other countries.
The credit score is an important parameter for car loans. It is a numerical value that your credit bureaus assign to measure your creditworthiness. Usually, a car loan is not granted unless the credit score is more than 700. The credit score needed for car loans varies by lender and the specific terms of the loan. However, a minimum score of 640 at least is required by most lenders. In case it is below that, the car loan can be denied.
The credit score is an important parameter for car loan interest rates. Higher the credit score, lower the interest rates. Your credit score represents the likelihood of repayment of the loan. This score is used by banks and financial institutions to rate the risk associated with loan applicants.
In order to obtain a loan, the consumer usually has to provide information, which is assessed by the lender, and this assessment determines the credit score needed to obtain the loan. Lenders are now likely to be more concerned about the reputation, payment history and employment history of potential car loan applicants than before.
Read More: How To Find The Perfect Car Loan
How Does My Credit Score Affect Car Loan?
You may be wondering how your credit score impacts your car loan eligibility. If you have a low credit score, it means you’re more likely to be denied auto loans. It’s not the only factor that loan companies consider, but it is still a major one. A low credit score can increase the amount of money needed to repay your loan, and a higher interest rate.
Car Loans are approved faster with a higher credit score:
The credit score of the applicant plays a crucial role in the approval process. Lenders do not want to take the risk of extending a loan to a person with a low score. A high credit score assures the lender of your repayment capacity and helps him determine whether to approve you for credit. looking at your credit score, he will approve your loan faster.
You get better interest rates:
The credit score can be a deciding factor in the interest rate you will pay on your car loan. The credit score also helps you understand your risk levels and thus help you decide on the type of loan that will be best for you. The higher your score, the lower your interest rates. The credit score is one of the key factors that banks and financial institutions consider while assessing your potential to repay the loan.
You can get a higher car loan amount:
The higher your credit score, the higher the car loan amount you can get. This is because higher the credit score, lower the interest rate and thus lower the amount payable over the loan period. The higher your score the more loan amount you can easily get.
The credit score or creditworthiness is a number that indicates the likelihood that you will repay an obligation. It is computed based on your payment history and your credit-related information.
A positive credit score is necessary for all loans, including car loans. As a rule of thumb, the ideal credit score for any loan is 700 or higher. A credit score of 660 or lower may mean the applicant has not proven his ability to repay the loan.
If your credit score is below the minimum required for your loan, you may not be approved for the loan and you may have to consider other loan options.
Also Read: What is a good CIBIL™ Score for Car Loan in India
Here Are A Few Steps To Improve Your Credit Score
#1 Pay on time:
As a general rule, a good payment history is a key factor in a lender’ s decision of whether to grant you a loan. In case you have not made any payments in a while, your lender will expect regular payments until your debt is paid off. The more payments you make on time, the better your chances are of getting a loan.
#2 Pay off old debts:
Even if you have not made any payments in a while, it is important to keep your credit balance low in order to keep your credit score high. It is always wise to pay off your old debts before applying for a new loan or buying a car.
#3 Have a good credit history:
Lenders prefer to lend to customers who have a good credit history. They look for a history of timely payments and positive actions.
#4 Avoid accumulating credit card debt:
A credit card is a revolving account. In other words, it is an account that you use to make purchases and you don’ t have to pay the full balance at once. Instead, you pay a small amount each month and use that money to pay for your purchases. Keep your credit card bills paid at all times. Your credit score will reflect your payment history and you will have no credit score if you have not kept your credit card bills in good standing.
A poor credit score is not the end of the world. You can improve it with diligent debt management. You can take steps to raise your score as soon as possible and then apply for a car loan.
While it might be inconvenient to pay for an auto loan at the moment, you can increase your credit score by making timely payments of your bills. You can still get the loan you want if you manage your money well and pay off your debt.