What Is The Minimum Credit Score For A Used Car Loan?

A credit score is a key factor in determining loan approval in India. It ranges from 300 to 900, with a higher score indicating better creditworthiness and improving your chances of loan approval. While most lenders prefer a score of 700 or higher, some may offer flexibility to those with lower scores, albeit at higher interest rates. Maintaining a good credit score enhances your Used Car Loan eligibility and ensures better loan terms, faster approval, and manageable repayment options.

Credit Score for Used Car Loan

The availability of easy Used Car Loans is a key driver behind the growth of the Indian Used Car Loan Market, which is expected to expand at a CAGR of over 11% by FY2027. Lenders tend to approve loan applications faster for individuals with higher credit scores. Those meeting the minimum CIBIL score for Car Loan can negotiate favourable terms, such as lower interest rates and higher loan amounts. These loans offer flexibility in loan tenure, convenient EMI repayment options, quick disbursement, and minimal paperwork, making them an attractive choice for many buyers.

Factors that impact loan approval 

A borrower’s credit score is a major element considered for getting a loan application approved. However, lenders consider the applicant’s income, city, debt-to-income (DTI) ratio and the company. Other factors that determine Used Car loan eligibility are:

Car’s age and model

The newer the car is, the better the interest rate. It helps to avail of a Used Car Loan at lower interest rates. For a Used Car Loan, the borrower need not provide any collateral. Therefore, lenders consider the age and model of the pre-owned car before offering an interest rate on a loan.

Must Read: Easy Ways To Apply For A Used Car Loan

Income

The borrower’s income is also a major influencing factor for the Used Car Loan interest rate. It helps lenders determine whether a borrower can pay the EMIs in a timely manner. Income also determines the interest rate on a loan. A steady income with a stable job is likely to get a lower interest rate comparatively. The current employer also determines the interest rate.

Loan tenure

A longer loan tenure can reduce your EMI but may increase the overallUsed Car Loan interest rate, leading to higher total interest payments. Opting for a shorter tenure helps reduce the overall amount payable. However, while selecting a repayment tenure, it’s important to balance a manageable EMI with the total cost, ensuring the loan remains affordable without compromising long-term savings.

So, before applying, check your eligibility for Used Car Loan to improve your chances of approval.

How to maintain a high credit score for a second-hand car loan?

Credit Score is calculated based on:

• payment history (35%)
• existing debts (30%)
• the length of the credit history (15%)
• new credit (10%)
• credit mix (10%)

An individual should keep their creditworthiness sound to avoid the risk of a declined loan application. Rejected loan applications also lower a credit score.

Must Read: Best Method to Calculate EMI on Used Car Loan

A bad credit score may mainly result from no credit history or some pitfalls in the credit records, like poor payment history, a high debt-to-credit ratio, and multiple loan applications at a time.

Look at the ways to keep your credit score for car loan high:

Timely Payments: Pay all existing loan EMIs and credit card bills on time to avoid negative impacts on your credit score.

Low Credit Utilisation: Keep your credit usage below 30% of your total credit limit to show responsible borrowing habits.

Avoid Multiple Loan Applications: Limit applications for loans or credit cards to prevent concerns about financial stability.

Monitor Credit Report: Regularly check your credit report for errors or discrepancies and correct them promptly.

Maintain Long Credit History: Keep older credit accounts open, as a longer credit history boosts your score.

Avoid Closing Unused Cards: Retain unused credit cards to maintain a higher credit limit and lower utilisation.

Affordable Loan Amounts: Choose a loan and repayment tenure you can manage comfortably to ensure consistent, timely payments.

Diversify Credit Types: A mix of secured and unsecured credit, handled responsibly, improves your credit score.

Conclusion

Maintaining a good credit score is vital for securing a loan with favourable terms. A higher CIBIL score for car loan ensures faster approvals and competitive interest rates, making loan repayment more manageable. When you’re purchasing a pre-owned car, lenders often assess your creditworthiness, including credit score, to determine the loan amount and interest rate. By managing your finances well, paying EMIs on time, and monitoring your credit score, you can access the best Used Car Loan interest rates from Muthoot Capital to buy your favourite car effortlessly.

FAQs

Can I apply for a Used Car Loan with a low credit score?

Yes, it is possible to get a Used Car Loan with bad CIBIL score, but you may have to pay higher interest rates or agree to additional terms. To improve your chances, maintain a stable income and provide complete documentation.

Do second-hand car loans come with higher interest rates?

Second-hand car loans may have slightly higher interest rates compared to new car loans. This is because used cars have lower resale value, increasing the lender’s risk.

What is the process to calculate monthly EMIs for a Used Car Loan?

You can calculate your monthly EMI using an online EMI calculator. Enter the loan amount, interest rate, and repayment tenure to get an estimate of your monthly payments.

Which documents are usually needed for a Used Car Loan application?

Commonly required documents include identity proof, address proof, income proof (salary slips or IT returns), bank statements, and vehicle-related documents like the car’s registration certificate and insurance policy.

How much CIBIL score do I need for a car loan?

A CIBIL score of 750 or above is ideal for securing a car loan, as it increases approval chances and leads to better interest rates. Scores between 600-750 may still qualify for a loan, but with higher interest rates.