Understand the impact of credit score on your used car loan to take measures for budget-friendly loan terms.
Purchasing a car is a significant financial decision for many, but the cost can often be overwhelming. Opting for a used car provides a more budget-friendly alternative. To further ease the financial commitment, you can get a used car loan. These loans are as commonly sought after as new car loans in today’s market.
Like any loan, used car loans come with repayment terms, interest rates, down payments, and eligibility requirements. One of the most critical factors influencing the terms of your loan is your credit score, which directly affects the interest rates and monthly payments you will be required to pay.
Lenders use your credit score as an analytical tool to determine your financial behaviour. Lenders check your credit score to see how much you are capable of repaying the loan for your used car. Your credit score will depend on factors like:
Your repayment history
Total debt
Credit history
Length of debt
A high CIBIL score shows that you manage your finances well. On the other hand, a low score can make lenders see you as a potential risk.
Since used car loans can be pretty high, lenders want to be sure they will get their money back. That’s why they use your credit score to assess the risk. Keeping a good CIBIL score helps you get better loan deals.
If your credit score is unsatisfactory to the lender, here’s how the interest rate on the loan gets affected:
High Credit Score Leads to Lower Interest Rate
If your credit score is above 700, lenders see it as good or excellent. This score will determine your good financial health, and you will be eligible to get a used car loan with a lower interest rate. The good score is ranging between 700 to 900.
A score closer to 900 will allow you the lowest interest rate offered by the lender. This will save you a lot of money in the long run. To simply put it, a high credit score gives you access to the best loan deals.
Low Credit Score Leads to High Interest Rate
Your credit score is poor if it’s below 650-700. This signifies you do not have good repayment behaviour. The lender considers this as a potential risk.
In this case, even if they sanction a loan for your used vehicle, they will charge you a high interest rate. Some lenders even can give you the loan only after you pay a huge amount of down payment.
Not only the interest rate, a poor credit score can impact other loan-related factors that can significantly reflect in your expenses.
Impact on Loan Approval
There is a possibility a borrower can not secure a loan if the credit score is not per the lender’s standard. Card holders who have a score below 600 often face this situation. In this case, you can negotiate to get a consignor or agree with a short repayment tenure. Short tenure can make the loan management process hard.
Impact on Down Payment
Your credit score will tell how much down payment you have to make in order to get the loan. Borrowers with a good score usually need to pay a lower amount of down payment. On the other hand, you need to pay a significant amount of down payment with a lower credit score. It’s a way lenders try to reduce the risk as much as possible.
Impact on Loan Terms
Your credit score also affects how flexible your loan terms can be. With a good score, you get more options, like longer repayment periods or better payment plans.
Impact on Additional Offers
If you have an excellent credit score, you can get special offers from lenders. Many car brands and dealerships give discounts or deals to buyers with high scores, helping you save money. Lenders offer these perks because they trust you to repay on time.
A low credit score doesn’t mean you can’t get a loan. Instead, focus on improving your CIBIL score before applying. Here are some simple steps to boost your score and build a strong credit history:
Pay on time: Lenders see late payments as a red flag, so pay on time. This goes for all the EMI and credit card dues. Use a reminder so that you don’t forget to pay on time. Most loan apps have the reminder feature to help you pay the dues on time every month
Keep balances low: Avoid using too much credit and manage your spending wisely
Maintain a good credit mix: A balance of secured loans (like home or gold loans) and unsecured loans (like personal loans or credit cards) is better. Too many unsecured loans can give a bad impression to the lender
Monitor joint accounts: If you have an add-on credit card account or guarantee a loan, you’re responsible for other people’s missed payments. A co-borrower’s mistake can affect your credit score negatively
Keep in mind that building a good credit score takes time, but once you achieve it, it will benefit you in the long run. With a strong credit score, you can purchase your dream pre-owned car with better loan terms and interest rates.
Explore the loan options at Bajaj Markets and choose the one that suits you best. Take help of a used car loan EMI calculator to plan your repayments before applying for the loan.
Most lenders usually prefer a credit score above 750 as ‘good’ or ‘excellent’. The highest credit score is 900. That being said, a score closer to 900 will allow you to get the best terms on your used car loan.
It will depend on the lender's policy and how low the score is. Usually, borrowers with a score lower than 600 find it challenging to secure a loan. But always remember that you might have to give a high interest rate and down payment to get the loan.
A score below 600 is a poor score for a used car loan approval. It’s better if you improve your credit score by paying the bills on time, and regularly monitoring it, and then apply for better terms. rms.
It depends on the lender's range. For example, if the range is 9% to 12% a borrower with a credit score of 750 might get a car loan with a 9% interest rate. On the other hand, someone with a 600 score may have to pay a higher rate of 12%.
Most lenders offer a lower interest rate to the borrower with a high credit score. But, if you're maintaining good credit behaviour, you may negotiate with the lender.
If the low credit score causes your high interest rate, you have to agree with the lender’s terms and stick with it till the end of the repayment period. However, you may choose the prepayment method and close the dues early. You can also look for other lenders who are offering loans with that credit score in comfortable terms.
If you are not in a hurry to buy the car, then it will be a perfect way to get good terms on the loan. Credit score will take some time to improve, so you have to keep your patience.
Yes, you can negotiate with your lender on
Car loan terms
Interest rates
Repayment plans
Loan amounts
To get a better deal, be prepared, show a good credit history, and compare offers from other lenders.
No, all lenders don't view credit scores the same way, as they use different credit scoring models. They will check credit reports from various credit bureaus, but in India, CIBIL is most popular. So, make sure your CIBIL score is as per the lender’s standards.
Other than credit score, your loan amount, loan terms, and repayment tenure can affect your interest rate.