Credit scores and car: Impact on auto loans, insurance and leasing

Credit score – or CIBIL score – signifies the creditworthiness of a borrower. The higher the score, the better the chances of being able to borrow money, which too at a lower interest rate and on convenient terms. Conversely, a lower score means finding it hard to raise a loan. And even if you get a go-ahead, it will be at a high interest rate.

But what many people do not realise is that it not only impacts your personal loans but auto loans. Let us understand how.

Car loans

A credit score above 750 typically qualifies for low interest rates and up to 80-90% of financing.

However, customers with credit scores between 700-749 may still get approval, but at slightly higher rates (9.5-11%), whereas 650 to 699 may be made to face interest rates above 12%. Alternatively, they require co-applicants & guarantors. Below 650, approvals become hard with some banks rejecting straight away.

Insurance

So far, a credit score does not directly impact car insurance premiums in India. The insurance regulator IRDAI regulates premiums based on a variety of factors such as the car's Insured Declared Value (IDV), engine cubic capacity, vehicle's age, No Claim Bonus (NCB), and add-ons.

Additionally, third-party comprehensive insurance premiums are standardised across insurers and not mapped to credit score.

Leasing

Car leasing, which is popular for luxury and premium vehicles, treats credit score quite similarly to auto loans, because it is a long-term rental with credit-like obligations.

Providers require a minimum score of 700 to 750 for approval, as they view leasing as a financial commitment where monthly rentals are meant to be paid.

A score above 750 can pave the way for better terms, such as higher mileage allowances and lower security deposits. However, customers with a credit score lower than 700 may lead to rejection or higher upfront payments.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.

For all personal finance updates, visit here