Car loans help people realize their dreams of owning a car by borrowing money and paying it back through affordable instalments. In India, there are a few factors that determine your car loan eligibility, such as a minimum age of 21 years, earning a certain monthly salary, and having a good credit score.

A credit score (also known as a CIBIL score after the most popular credit bureau), is a three-digit number between 300 and 900. This is calculated by the four licensed credit bureaus using a person’s credit history and usage of loans and credit cards in the past. It is a measure of their “creditworthiness”, or ability to repay and borrow money.

Having a good credit score (one above 750 or higher) can be very important when looking for a car loan. This is because the higher your score, the higher are your chances of getting a car loan approved, as lenders will see that you have been a responsible borrower in the past.

Your credit score is also important as it can determine many other factors, such as:

• Determines approval or rejection: CIBIL scores and other credit scores are a measure of your creditworthiness, and thus help lenders decide whether or not to approve your loan requests based on your repayment behavior in the past.
• Determines the rate of interest: Having a higher score also reflects greater financial responsibility. Thus lenders are more likely to offer you a lower interest rate, and you will also be able to negotiate on the rate of interest. However, lower scores pose a risk to lenders resulting in them raising the rate of interest.
• Determines the loan amount: Proof of your creditworthiness and a good repayment history can allow you to avail of a larger car loan amount, while a low CIBIL may not allow you to get the desired loan amount.

Having a good credit score will also provide you with better access to special offers, like zero down payment, lower processing fees, and more. While a low score can result in car loan requests being denied, or offers that have a higher interest rate, or higher down payments.

As seen above, you can still get a car loan even with a low credit score or no credit history (i.e. due to no prior loans/credit cards, your score is denoted by NH/NA on a credit report). You can try one of the following to improve your eligibility for a car loan:

• Co-applicant/ Guarantor: Find a co-applicant or a guarantor to apply with you for a loan. For example, a close family member, who has a good credit score. This can improve your eligibility.
• Income and bank balance: Proving that you have a stable income and a good bank balance that can support the payment of monthly loan installments, can help.
• Collateral: Some lenders may agree to offer a car loan against collateral, such as gold, shares, assets, fixed deposits, etc.
• Reduced loan amount:  A low credit score indicates a risk of default for the lender, but you can request a lower car loan amount, and a higher down payment that poses a lesser risk to the lender.
• Different lenders: Look for lenders that might offer loans to those with a low credit score at higher interest rates.

However, if your application for a car loan has been rejected, it is recommended that you try to improve your credit score before applying for a loan again, as immediately applying for loans with other lenders will reduce your score further.

NOTE: Loan approvals depend on many other factors, and these methods might not ensure approval if your credit score is low.

Since a low credit score can result in reason banks being unwilling to extend you a loan, here are a number of ways to improve your credit score:

• Know what your credit score is.
• Read through your credit report for mistakes, and rectify any errors.
• Settle any outstanding or defaulted payments as soon as you can.
• Pay your credit bills and EMIs on time.
• Try not to use less than 30% of your credit limit.
• Do not apply for any new credit requests in a short amount of time.

Remember, there are no "quick fixes" to improve your credit score as it is a process that will take time and effort to fix. However, you should start to see improvements within a few months.