How a Car Loan Can Boost (or Hurt) Your Credit Score

Buying a car has become a necessity today if you want to make your daily commute smoother and want to simplify family trips. But due to the high cost of a good car, financing often seems far-fetched. Instead of putting off the purchase year after year, you can fund the car purchase right when you need it with a Car Loan. With HDFC Bank’s Xpress Car Loan, which offers a quick digital journey and minimal documentation, getting started has become easier than ever.

But as it is a loan, you may wonder, “Does a Car Loan improve credit score?”. The answer is both a yes and no, because its impact on your credit score depends on how you manage repayments. Learn everything about it in this blog. 

When handled well, the impact of a Car Loan on the credit score is positive. Here’s what you can expect:

• Trust building

As you make regular repayments on your Car Loan, you establish trust with prospective lenders.

• Healthy credit management

A Car Loan is a secured loan. Thus, you secure a lower interest rate than an unsecured loan, which helps build a healthy credit history.

• Proves repayment discipline

If you manage your Car Loan repayments well without defaulting or delaying EMIs, you can prove yourself as a reliable borrower. Choosing a convenient option like HDFC Bank Car Loan can help you stay consistent with repayments.

• Access to better loan offers

With a good repayment record, you position yourself favourably for future loan offers where you get better terms. Ensure you choose a Car Loan that offers attractive interest rates, higher financing and pre-approved offers.

Car Loan and Credit Score: What You Need to Consider

Mismanaging your Car Loan can also pull your credit score down. Understanding this relation between Car Loan repayment and credit history is also important to avoid missteps:

• Even one missed or delayed EMI can hurt your credit score.

• When you stretch your budget too thin with the EMIs, you risk defaulting, which affects your credit score.

• Applying with multiple lenders at once can lead to a new loan enquiry, causing a temporary dip in the credit score.

• Improper loan closure, which isn’t recorded properly in your credit report, also leads to a low credit score.

Mismanaging your Car Loan can also pull your credit score down. Understanding this relation between Car Loan repayment and credit history is also important to avoid missteps:

• Even one missed or delayed EMI can hurt your credit score.

• When you stretch your budget too thin with the EMIs, you risk defaulting, which affects your credit score.

• Applying with multiple lenders at once can lead to a new loan enquiry, causing a temporary dip in the credit score.

• Improper loan closure, which isn’t recorded properly in your credit report, also leads to a low credit score.

Since you’ve understood the impact of a Car Loan on credit score, you can use this knowledge to turn the odds in your favour.

Here’s how to make the connection between Car Loans and credit score rewarding:

• Borrow according to your affordability

Choose a car model that fits your lifestyle needs and budget. Make sure you can comfortably repay the borrowed amount.

• Never miss an EMI

Prioritise timely Car Loan EMI repayments like other non-negotiable monthly payments. You can also set an EMI mandate to never miss an EMI.

• Maintain a buffer in your account

Life happens, and your well-planned budgets can be disrupted. Hence, preparing for such scenarios with a buffer in your account helps pay for EMIs even during bad months.

• Check credit report periodically

Make sure all your EMIs are reported correctly in your credit report. There is no restriction on the number of times you can check, and it doesn’t trigger any enquiry. Tools and eligibility checks available in digital-first solutions like HDFC Bank’s Xpress Car Loan can help you plan better before applying.

A Car Loan is a powerful financing tool, and using it mindfully makes all the difference. You can either build or damage your credit score depending on how you manage the loan over time. It helps to make timely EMI payments and control borrowing to strengthen your profile. Avoid defaulting and making frequent applications. Make it a habit to track your credit score, auto-debit EMIs, and apply judiciously. 

To simplify car ownership, you can opt for HDFC Bank’s Xpress Car Loan, with disbursal in as little as 30 minutes.

Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit at sole discretion of HDFC Bank Ltd. Other charges and taxes as applicable. The offer is unconditionally cancelable without prior notice. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.