Credit Score For Used Car Loan: Know Minimum Credit Score For Loan
Last Modified: 18-May-2022
Credit Score is a measure of borrower credit risk in India and a crucial factor for loan approval. Credit Score expresses the creditworthiness of an individual in numeric value. It is between 300 and 900. Here the score of 900 is the maximum score denoting the maximum credit worthiness. A high score shows the loan seeker’s ability to repay a loan. The higher the score, the higher odds of used car loan approval.
- A credit score is considered poor if it ranges between 300 and 599.
- A fair credit score ranges from 600 to 749.
- A good credit score ranges between 750 and 900.
With Credit Score, lenders try to understand how the borrower has treated their past debts. Lending institutions sanction a loan after scrutinizing the creditworthiness of the applicant.
Credit Score for Used Car Loan
The availability of easy used-car loans is one of the primary factors in the growth of the Used Car Loan Market. The Indian Used Car Loan Market is anticipated to grow at a CAGR of over 11% by FY2027.
Lenders can quickly accept a loan application with a higher score. Generally, the minimum Credit Score for Used Car Loan is 750. If an individual can maintain a credit score above this range, a lender may allow negotiating for early loan terms, like a lower interest rate and higher loan amount.
Used car loans are flexible for loan tenure and easy EMI repayment options. They are known for quick loan disbursement and minimal paperwork.
Factors that impact loan approval processing
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 ratio and the company. Other factors that determine used-car loan eligibility are elaborated below:
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.
The borrower’s income is also one of the major influencing factors for the used car loan interest rate. It helps lenders to determine whether a borrower can pay the timely EMIs or not. Also, income 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.
A long term loan can reduce the used car loan interest rate. However, eventually, you will end up paying more interest in the long run. It would be better to prefer a shorter loan tenure to reduce the overall amount payable. While choosing a repayment tenure, check for affordable EMI also.
How to maintain a high credit score for 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 the creditworthiness sound to avoid the risk of a declined loan application. Rejected loan applications also impact the credit score. It lowers the credit score.
Mainly, a bad credit score may 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 the credit score for second-hand car loans high:
- If there is an existing loan, ensure that you repay each EMI on time. It will greatly improve your credit history and increase your credit score.
- If you use a credit card, pay the credit card bill in full and on time to create a sound credit history.
- Avoid making multiple loan applications at one point in time.
The Bottom Line
Thus, if you want to conveniently commute in your private vehicle instead of public transportation but your budget limits you, you can consider this second-hand car finance option.
- Apply for a used car loan online @ 8.50%
- Loan amounts up to 10 lakhs
- Instant loan approval within 20 minutes
- Low and easy flexible EMIs
Approach a lending institution offering used car loans at competitive interest rates and easy eligibility criteria.