Purchasing a car is a significant milestone, but for individuals with a low CIBIL score, obtaining a car loan can feel like a challenge. Your CIBIL score is a reflection of your creditworthiness, and a low score often signals potential risks to lenders. However, while it may be more challenging, securing a car loan with a low CIBIL score is not impossible. Here’s a detailed guide to help you navigate this process effectively.

MORE NEWS: Tripadvisor reveals the must-visit destinations for 2025

Understanding the Impact of a Low CIBIL Score on Car Loans

A CIBIL score, ranging from 300 to 900, indicates your credit history and repayment behavior. Most lenders prefer a score of 750 or above for approving car loans. A low score—typically below 650—might result in:

  • Higher Interest Rates: Lenders charge higher interest rates to offset the risk
  • Lower Loan Amounts: You may not qualify for the loan amount required for your purchase
  • Additional Collateral Requirements: Lenders might ask for additional collateral or a guarantor
  • Limited Lender Options: Not all banks or financial institutions provide loans to individuals with poor credit

Tips for Getting a Car Loan with a Low CIBIL Score

Here are some things you can do to improve your loan eligibility and get the most favourable terms:

Save for a Larger Down Payment

A larger down payment reduces the loan amount required, lowering the lender’s risk. This increases the likelihood of approval and can also help you negotiate better terms.

Opt for a Co-applicant

Applying with a co-applicant, especially one with a high CIBIL score, improves your chances of loan approval. The lender assesses the combined creditworthiness, making your application stronger.

Provide Proof of Stable Income

Demonstrating a steady income and job stability reassures lenders of your repayment capacity. Submit documents such as salary slips, bank statements, or IT returns to support your case.

Choose a Secured Loan

Opt for a secured car loan by pledging an asset as collateral. This lowers the lender’s risk and increases your chances of approval even with a low score.

Negotiate with Lenders

Approach smaller banks or non-banking financial companies (NBFCs) known for their flexible credit policies. Building a relationship with the lender and negotiating terms could result in a favourable outcome.

Have a Loan Guarantor

A guarantor with a strong credit profile can vouch for your repayment ability. Their financial standing provides additional security to the lender.

Improve Your Credit Score Before Applying

If time permits, focus on improving your CIBIL score. Pay off existing debts, clear credit card dues, and avoid new credit applications for a few months. Even a marginal increase in your score can make a difference.

How to Improve Your Credit Score

Here are some tips you can employ to improve your credit score:

Timely Payments

Pay all EMIs and credit card bills on time to build a positive credit history. This helps create a positive repayment history which helps boost your CIBIL score.

Maintain a Low Credit Utilisation Ratio

Use no more than 30% of your credit limit to demonstrate financial discipline, helping improve your credit score and profile.

Check Your Credit Report for Errors

Review your credit report regularly to identify and rectify any discrepancies. This ensures accurate CIBIL score calculation.

Clear Outstanding Dues

Settle any overdue amounts on loans or credit cards as soon as possible. Unpaid dues can significantly impact your credit score over time.

Diversify Your Credit Mix

Maintain a healthy balance of secured loans (like home loans) and unsecured loans (like personal loans). A varied credit portfolio demonstrates to lenders your ability to handle different types of credit responsibly.

Increase Your Credit Limit

Requesting a higher credit limit on your credit card can lower your credit utilisation ratio if your spending remains consistent. This demonstrates better credit management.

Avoid Closing Old Credit Accounts

Old credit accounts typically contribute to the your credit history’s length, which is an important factor in determining your credit score. Avoid closing these accounts unless absolutely necessary.

Utilise Automated Payment Options

Set up auto-debit or standing instructions for EMI and bill payments. This ensures that you never miss a due date, helping you build a consistent repayment record.

Limit Joint Loan Applications

If you are a co-applicant or guarantor on loans, ensure that the primary borrower pays on time. Any default by them can negatively affect your credit score as well.

Don’t Make Multiple Credit Applications Simultaneously

Avoid excessive hard inquiries, as each inquiry can temporarily lower your score. Plan your credit applications strategically.

Use Secured Credit Cards

If your credit score is low, consider using a secured credit card against a fixed deposit. Consistent usage and timely payments on these cards can help rebuild your credit score.

Pay More Than the Minimum Amount

For credit cards, always aim to pay more than the minimum due amount. This not only reduces your outstanding balance faster but also reflects positively on your credit behaviour.

Key Takeaways

Getting a car loan with a low CIBIL score requires strategic planning and effort. While traditional lenders may impose stricter conditions, alternative options like NBFCs, secured loans, or dealer financing can help you secure funding. By implementing the tips mentioned and maintaining financial discipline, you can overcome the challenges of a low credit score and drive home your dream car.

Remember, improving your CIBIL score should remain a priority for future financial needs. Responsible borrowing and timely repayments not only enhance your creditworthiness but also open doors to better financial opportunities.