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Why is CIBIL Score Important to Get a Used Car Loan

A good CIBIL score increases your chances of loan approval and helps you secure a Used Car Loan at attractive interest rates, resulting in long-term savings. A positive credit history can also lead to more favourable loan terms and greater negotiation power with lenders. It expedites the loan approval process, allowing you to acquire your desired used car quickly in a hassle-free manner.

A poor credit score is lower than 600, identifying you as high-risk with low creditworthiness. While CIBIL defaulters with a score less than 600 can still apply for car loans, approvals become tougher, and interest rates can be much higher.

Minimum CIBIL Score Required for a Pre-owned Car Loan

The minimum credit score for a Pre-owned Car Loan typically falls in the range of 750 to 900, although it may vary between different lending platforms. Lenders use this score as a benchmark to assess your creditworthiness and car loan eligibility. Naturally, people with higher scores generally get more favourable terms and attractive interest rates.

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Things to Consider Before Applying for a Used Car Loan for CIBIL Defaulters

Check Your Credit Report

There could be many reasons for a low CIBIL score, including errors on your report caused by duplicate accounts, misprints, or fraudulent activity. These could unnecessarily lower your score, wrongly reflecting low creditworthiness. Before you start the loan application process, check your credit report to ensure there are no errors. If found, opt for credit repair services to promptly correct them.

Consider the Total Cost of Ownership

When buying a used car, it's crucial to consider the total cost of ownership beyond just the purchase price. Factor in expenses such as insurance, maintenance, fuel, and registration fees. Make sure you can comfortably afford all of these costs in addition to your auto loan payments.

Set a Realistic Budget

Setting a realistic budget will help you narrow down your options and avoid overextending yourself financially. Consider factors such as your monthly income, expenses, and any existing debts. Keep in mind that a poor credit score may result in higher rates of interest and approvals on lower loan amounts. Choose an amount to borrow accordingly. You can use a used car loan EMI calculator to set your budget.

Compare Lenders

Shop around and compare loan terms from multiple lenders to ensure you are getting the best deal possible. Look for lenders that offer specialised loans for people with low CIBIL scores, and consider NBFCs that offer flexible repayment options and proactive customer service.

Understand the Terms of the Loan

Pay attention to details such as the Used Car Loan interest rates, loan term, monthly payment amount, and any additional fees or charges. Calculate your monthly EMIs to create a repayment plan so that you can slowly improve your credit history and avoid defaulting. Ask questions if anything is unclear and ensure that you are comfortable with the terms before committing to the loan.

Read the Fine Print

Don't overlook the fine print in your loan agreement. Make sure you carefully read and understand all the strict loan terms and conditions before signing. Check all the details, such as early repayment penalties, late payment fees, and any other potential pitfalls that could impact your ability to repay the Second-hand Car Loan.

Eligibility Criteria for a Used Car Loan for CIBIL Defaulters

Meet the other basic eligibility requirements to increase your chances of used car loan approval:

  • Age: 21 to 60 for salaried individuals, 24 to 65 for self-employed individuals, minimum age of 24 for partners/proprietors

  • Experience/Vintage: Criteria differ across employment status and loan amount

  • Citizenship: Indian

Click here to read more about Used Car Loan eligibility criteria in detail.

Tips to Get a Used Car Loan for CIBIL Defaulters

  • Take on a Co-applicant - Applying for the loan with a co-applicant who has a higher credit score significantly increases your chances of used car loan approval.

  • Larger Down Payment - Putting a large sum as a down payment reduces your total car loan amount, overall tenure, and interest rate, increasing the chances of approval.

  • Use Collateral - Providing collateral upfront helps reduce the risk on the lender's side, enabling easier loan approval. Just keep in mind that defaulting will lead to the lenders seizing your collateral, so a secure repayment plan is essential.

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Frequently Asked Questions

What is the minimum CIBIL score required for a Used Car Loan?

The minimum CIBIL score required for a used car loan is 750. It's possible to get a loan with a low credit score; however, the interest rates are likely to be high. Your CIBIL score ranges from 300 to 900, with a score below 600 indicating a default.

How can I improve my CIBIL score before applying?

Poor credit history can negatively impact your car loan application process. You can improve your CIBIL score by making timely payments on existing debts, maintaining low credit card balances, and avoiding applying for new credit. Repaying a used car loan on time can help rebuild your credit score.

Will my CIBIL score be checked for a Used Car Loan?

Yes, a CIBIL check is standard practice to assess your creditworthiness and loan eligibility for a used car loan. An ideal score is above 750 for speedy approvals and beneficial car finance terms.

Where can I check my CIBIL score for free?

You can check your CIBIL score for free on Poonawalla Fincorp’s official website and the Poonawalla Fincorp app.

What is the maximum loan amount and tenure I can get for a Pre-owned Car Loan?

If you have a good credit score, you may be eligible for around 80% to 90% of the car’s value as a loan amount, with a repayment tenure ranging from 12 to 60 months. Poonawalla Fincorp's Used Car Loan offers up to 100% of the car's value and an even longer tenure, ranging from 12 to 72 months.

What are the required documents for used car loan applications for CIBIL defaulters?

Here are the documents required for a used car loan:

  • Identity proof

  • Address proof

  • Income proof

  • Employment/business continuity proof

  • Co-applicant documents

  • Vehicle documents

  • Passport-sized photographs

Most lenders require evidence of stable income and bank statements to approve a used car loan application.

What are the factors affecting Pre-owned Car Loan interest rates?

Pre-owned Car Loan interest rates depend on factors like your credit score, financial stability, vehicle age, loan amount, and tenure. Good credit history, stable income, newer vehicles, larger down payments, and shorter tenures usually lead to lower rates. Rates also vary by lender type and prevailing market conditions.

For how many years does CIBIL keep records of defaulters?

CIBIL retains records of payment defaults for 7 to 10 years, affecting future credit. This emphasises the need to plan finances and repayment tenures wisely.