Why You Need to Check Your Credit Score Before You Apply for a Car Loan?

Buying a car is a major milestone and for most of the people, it involves taking out a car loan. But before you apply for a car loan online, there is one thing you absolutely need to know i.e. your credit score.

In India, your credit score (commonly referred to as your CIBIL score) ranges from 300 to 900 and it plays a pivotal role in determining whether you will get approved for a car loan, how much you will be offered and at what interest rate. According to ICICI Bank, a score of 750 or above is considered ideal for car loan approval. HDFC Bank also recommends a minimum credit score for car loan as 730 for favorable terms.

Now we will analyse as to why credit score for car loan matters so much and how knowing it can save you money, time and stress.

What Is a Credit Score and Why Does It Matter?

Your credit score is a three-digit number that reflects your financial behavior. It is calculated based on:

• Repayment history
• Credit utilization
• Length of credit history
• Types of credit used
• Recent credit inquiries

Lenders use this score to assess your creditworthiness—in other words, how likely you are to repay the loan on time.

How Credit Score Affects Your Car Loan Terms?

Knowing the ideal credit score range for auto loan approval can help you qualify for lower interest rates. Tabled below is how different credit score ranges usually impact your car loan eligibility India:

Understanding the link between car loan interest rate and credit score can help you secure better financing terms and save significantly over the loan tenure.

Shyam has a credit score of 780. He gets a car loan at 8.5% interest with flexible repayment terms. Priya, with a score of 620, is offered a loan at 12.5% interest and needs to provide a guarantor also.

You may also like "How Inactive Cards Can Quietly Damage Your Credit Score?"

Why You Should Check Credit Score before Loan?

1. Avoid Rejection and Hard Inquiries

Each loan application triggers a 'hard inquiry' on your credit report. Too many of these can lower your score. By checking your score first, you can apply only where you're likely to be approved.

2. Negotiate Better Terms

A high score gives you leverage. You can negotiate for lower interest rates, higher loan amounts, or longer repayment periods.

3. Plan Your Budget Wisely

Knowing your score helps you estimate your EMI and total loan cost. Use online EMI calculators to see how your score affects monthly payments.

How to Check Your Credit Score?

You can check your credit score for free through:

• CIBIL (TransUnion)
• Experian
• Equifax
• CRIF High Mark

Most banks also offer free credit score checks via their apps or websites.

What to Do If Your Credit Score Is Low?

Don't panic, there are ways to improve your credit score before applying:

• Pay bills and EMIs on time
• Reduce credit card balances
• Avoid multiple loan applications
• Fix errors in your credit report

Example: Aman had a score of 670. He paid off his credit card debt and avoided new loans for six months. His score rose to 740 and he qualified for a better car loan.

How Much Can a Good Score Save You?

Now to show "How Much Can a Good Score Save You?", we will compare two borrowers:

Neha pays Rs.96,660 less in interest over the loan term just because of her better credit score.

Remeber that your credit score is not just a number, it is the key to get better car loan deals. By checking it before you apply, you can:

• Avoid unnecessary rejections
• Save thousands in interest
• Get faster approvals
• Enjoy peace of mind

Maintaining a healthy CIBIL score for car loan approval is crucial, as lenders use it to assess your creditworthiness and determine the interest rate you will receive. So before you go for your car loan, check your credit score is good enough to get a good deal. It is the smartest first step toward owning your dream car.

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