Credit Score and Car Insurance: The Hidden Truth for Indian Car Owners

You check your CIBIL score before applying for a home loan or a credit card. But do you check it before buying car insurance?

The answer is no. Countries like the United States of America use a credit-based insurance system where one's premium is based on one's creditworthiness as a borrower.

However, in India, the Insurance Regulatory and Development Authority of India does not permit premiums to be based on your credit score.

To clear the confusion on ‘does credit impact car insurance?’, let’s dive into this blog.

​What Is the Credit Score and How Does It Impact Car Insurance?

​A credit score is a 3-digit number ranging from 300 to 900. Bureaus like CIBIL, Experian, or Equifax calculate this score. They look at your loan repayment history, your credit card usage, and how long you have managed credit. A score above 750 is generally considered excellent.

​So, does this number impact your car insurance? ​In India, the short answer is no.

​Currently, insurance regulations in India do not link your CIBIL score to your car insurance premium. When you buy a policy, the insurer looks at your car, not your loan history. Your premium calculation relies on the vehicle's risk, not your financial risk.

​What is the Relation Between Credit Score and Car Insurance Premium?

​Since there is no direct link, your credit score does not determine your premium amount. You could have a low credit score of 600 or a high score of 800; your car insurance quote will remain the same.

​Insurers in India focus on these specific factors instead:

​Insured Declared Value (IDV): This refers to the current market value of your car. It also indicates the maximum amount an insurer will pay for your car. A higher IDV means a higher premium.

​Engine Capacity (cc): The Insurance Regulatory and Development Authority of India (IRDAI) fixes third-party rates based on engine size. Vehicles under 1000cc cost less to insure, while those with an engine size of 1500cc cost the most.

​Geographical Zone: Cars registered in metro cities often have higher premiums due to higher traffic and accident risks.

​Age of the Car: Lastly, older cars often charge lower premiums because the IDV is lower and also because of depreciation.

​While data analytics is growing in the Indian insurance sector, financial credit scores are not yet a parameter for pricing auto insurance.

​Why Having a Good Credit Score Helps?

​Even though a high CIBIL score won’t lower your insurance premium directly, it is still vital for your car ownership experience. A good score saves you money in other ways, such as:

​Cheaper Car Loans: This is one of the biggest benefits. If you have a score above 750, banks will offer you lower interest rates on vehicle loans.

​Easy Loan Approval: Lenders approve your loan applications instantly if you have a good credit history. It shows that you are trustworthy.

​Better Credit Cards: High scores unlock premium credit cards. Many premium cards offer cash back or reward points on insurance payments, effectively giving you a discount.

​How to Improve Credit Score for Better Insurance Premiums?

Although your credit score doesn’t affect your car insurance premiums, you can use it to your benefit. Here’s how:

​Step 1: Boost Your Credit Score

​Pay on Time: Never miss an EMI or credit card bill. This accounts for a huge chunk of your score.

​Limit Credit Usage: Avoid maxing out your credit cards. Keep your utilisation under 30% of your total limit.

​Monitor Your Report: Review your CIBIL report for errors once a year. If you see an incoherent entry, report it immediately to the right authority.

​Step 2: Lower Your Insurance Premium

​Protect Your NCB: The No Claim Bonus (NCB) is the single best way to reduce costs. If you don’t claim for a year, insurers like Bajaj General Insurance give you a discount on your premiums.

​Install Anti-Theft Devices: Install an ARAI-approved anti-theft device in your car. Insurers offer a discount on the premium for this, as it shows that you have taken precautions.

​Select The Right IDV: When buying motor insurance, it is important to correctly evaluate your needs. Overvaluing or undervaluing can increase or decrease your premium, but it will be a hassle when you file a claim.

Bottom Line

The answer to your question: ‘Does credit impact car insurance?’ is no. ​In India, your credit score does not dictate your car insurance cost. Insurers currently care about your driving record and your car's specifications.

However, maintaining a high credit score is essential for getting the best car loan rates. Focus on safe driving to earn your No Claim Bonus, and focus on financial discipline to keep your CIBIL score high.

​FAQs About Car Insurance

​Does credit score impact car insurance in India?

No, Indian insurers do not check your CIBIL or credit score when calculating your premium. They focus on the car's model, age, engine capacity, and your claim history.

​Can we renew car insurance before expiry?

Yes, you can renew your policy up to 60 days before the expiry date. Renewing on time is crucial for maintaining coverage. If you let the policy lapse for more than 90 days, you lose your accumulated No Claim Bonus (NCB), and you have to buy another policy from scratch.

​Can I claim GST on car insurance?

You can only claim the GST Input Tax Credit (ITC) if you use the car for business purposes. The insurance invoice must contain your business GSTIN. You cannot claim GST input for a personal vehicle used for private purposes.

​Which car insurance should I buy?

For cars less than 5 to 7 years old, buy a comprehensive policy from Bajaj General Insurance. It covers damage to your own vehicle and third-party liabilities. For very old cars with low value, a third-party policy or pay-as-you-drive policy might be more cost-effective.

​How much premium do I have to pay for car insurance?

The premium rates vary according to different kinds of policies. For example, for third-party car insurance for a 1000cc car, the premium starts from ₹2,094. Comprehensive plans may be more expensive.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.