How to Get a Used Car Loan With a Low Credit Score

Whether for a professional starting out or a parent looking for comfort, used cars offer a practical and affordable way for everyone to get behind the wheel. But if your credit score is on the lower end, you may be wondering if a car loan is even possible. Here’s what really matters when applying for a used car loan with a low score, and how you can still make it happen. Keep reading!

Understanding What a Credit Score Does

Before we get to applying for the loan, let’s break down the credit score:

• This is a snapshot of your financial behaviour over the past few years, reflected in a three-digit number.
• Usually between 300 and 900, it helps lenders understand how reliable you are with your payments and financial decisions.
• Banks and finance companies usually consider a score above 750 to be good, making loan approvals faster and interest rates competitive.
• In India, the Credit Information Bureau (India) Limited (CIBIL), which is an established credit information company, is a popular institution that determines scores.

Have you paid your loans on time? Did you max out your credit cards? All this contributes to your credit score. But a lower score isn’t a full stop; it’s just something that lenders take into account, and it can be improved.

Lenders will use your CIBIL score to decide:

• If your application should be approved or rejected
• What interest rate they’ll offer you
• What your loan amount and repayment tenure could be

Getting a Used Car Loan With a Low Credit Score

Here’s the good part—approvals on a used car loan for low CIBIL score holders are still possible. Used car loans are secured, which means the car itself acts as backup for the loan. This lowers the lender’s risk and assures them, even if your credit score isn’t high. So, while a perfect score makes things easier, it’s not the only way to secure a loan. Here’s how:

1. Focus on Your Current Financial Health

If you’ve got a stable income, manageable expenses, and no major unpaid debts, you’re already doing better than your score might suggest. Other factors that go into consideration are the type and nature of your job, your work history, and even where you live. Regular employment with a known company helps, reflecting a steady income. So does staying at your current address for a decent stretch. It shows the lender that you’re stable, settled, and responsible.

Lenders often ask for your recent bank statements or salary slips as official proof of income. So, even if things were bad two years ago, lenders can still take into account how they’ve changed and where they’re at now.

2. Choose the Right Car for the Right Reason

It’s tempting to go for the fanciest car that’s somewhat over your budget. But when you’re applying with a low credit score, it’s smarter to pick something affordable. Think practically—a used Wagon R might not turn heads, but it’s reliable, low on maintenance, and easy to resell.

The smaller the loan you apply for, the better your chances. Lenders are far more comfortable approving smaller amounts rather than a big number, especially if the borrower’s history is spotty and they have a bad score.

3. Increase Your Down Payment

One great way to boost your credibility with the lender is to pay more upfront. If the car costs ₹4 lakh and you can manage to pay ₹1.5 lakh on your own, you only need financing for the remaining ₹2.5 lakh. It shows you’re committed and reduces the risk on the lender’s side.

Even if it means dipping into savings or borrowing a little from family (if that’s an option), a higher down payment can make a noticeable difference to your approval chances.

4. Consider a Co-signer

A co-signer is someone who applies for the loan with you and is financially responsible if you default. This could be a parent, a sibling, or even a close friend—as long as they trust your repayment ability. If the co-signer’s credit score is stronger, lenders can feel more confident in approving the loan since it shows shared responsibilities. But, any missed payments will impact the co-signer’s credit score too, so be as responsible as you can with the payments.

5. Pick the Right Lender

Getting a used car loan for low CIBIL score holders is more doable if done with the right lender. Larger banks might stick to strict rules, but NBFCs tend to look at the full picture. Some even specialize in used car financing, offering support to first-time borrowers, small business owners, or people with limited credit history.

In addition, look at what the lenders offer, from interest rates to flexible repayment options and ideal tenures. Pick something that can help you maintain (and increase) your credit score. For instance, if your monthly EMI stays within 30–40% of your take-home salary, you’re in a much safer zone.

To Conclude

The idea that a low credit score closes all doors just isn’t true anymore. You definitely have to work towards increasing it while dealing with consequences like loan rejections and higher interest rates. But your goal of owning a reliable pre-owned car is well within reach.

As the next step, take time to understand your finances, choose your car wisely, and work with a lender who listens. If you're ready to take that step, check out Poonawalla Fincorp’s Pre-owned Card Loan—our representatives will be ready to assist you every step of the way.