Do you dream of having a car but are not able to meet the finances? Today, financial institutions have the sole aim of easing things out for you. A car loan can help you ride in the car of your dreams by allowing you to live with ease. Financial institutions use the CIBIL score for car loans to verify the creditworthiness of the applicant. Therefore, it becomes necessary to understand the importance of a CIBIL score and the ways to maintain it.
This blog takes you through the various aspects of a good CIBIL score for availing a car loan, like the rules to follow and what not to do. So, let’s begin.
Table of contents
What is the CIBIL Score for a Car Loan?
Credit Information Bureau (India) Limited or CIBIL was set up in 2000 with the objective of collecting and maintaining a record of an individual’s loan and credit history. In this way, it established a database of the borrower’s financial details. The information regarding the individual’s payments and borrowings towards the credit card and loans is collated from this database.
Once this information is collected, it is developed into a rank or score which ranges between 300-900. 750 is considered as the minimum CIBIL score for getting a car loan. The general criteria for availing of a car loan also include the requirements like a minimum of 21 years of age, a specified monthly salary, and a reliable credit history. Good credit history makes a good CIBIL score which can result in the approval or rejection of your application.
How to Check Your CIBIL Report?
CIBIL has made it easier for people to check their reports online before applying for a car loan. This service is paid and ₹470 is asked for the report. Follow these simple steps to obtain your report online:
- Open the CIBIL website and apply for your credit score.
- Input the necessary information like name, date of birth, and identity proof details.
- Furnish the valid contact information.
- Complete the payment process as a final step.
After you have submitted your application, the CIBIL agency will contact you and inform you of your credit score.
What is a Good CIBIL Score for a Car Loan?
Different credit bureaus use different scoring models to produce a credit score. However, a credit score of 700-750 is generally considered a decent CIBIL score required for a car loan. A score above 750 is considered to be the most favourable.
Let us have a look at how different CIBIL scores or credit scores can affect the approval of your loan.
| Credit score | Effect on loan |
| 750-900 | If you possess this score, then there are the highest chances of getting your car loan approved. Also, your loan approval process will be quick and swift. It will give you negotiating power to get the best interest rate. |
| 600-749 | Average or middle scores will also help you get a loan, but other factors like existing loans, income, employment stability etc., will also be taken into consideration. The approval process will take longer, and you might not get the best rate of interest. |
| 300-599 | Falling under this category will adversely affect the approval of your loan. There are chances that your application will be rejected. However, some lenders might offer you a loan with a small amount and high-interest rates. |
5 Things to Remember while Applying for a Used Car Loan
The used car market is booming because of the exceptional after-sales services. As a result, a large number of car dealers are spreading their pawns in the market. The major reason for the boom in the used car market is the ease of loan accessibility. In today’s competitive times, there are many big and small financial agencies that are willing to provide you with loans. However, it is important that you are vigilant while applying for a car loan. Here are a few things that you should keep in mind:
1. Do Your Research and Compare
Browsing through different loans offered to you is of utmost importance. Do not opt for the first lender which offers you a loan. Put in some extra effort and always compare the interest rates in the market first. Even so, today, you can hunt for good deals online. So, ensure that you take an informed decision by weighing all the offered deals.
2. Know what EMIs are
The EMIs for a used car loan are a little complicated and not as straightforward as Principal amount + Interest. Additionally, there are other elements to it, such as the annual maintenance, penal interest, and the EMI bounce charges. So, pay heed to these factors and calculate the actual EMI that you would have to pay above and over the interest rate.
3. Check Your Credit Score Religiously
A credit score is a three-digit number reflecting the creditworthiness of an individual. It ranges from 300-900. 900 is considered to be the highest score. Lenders like banks and non-banking financial institutions consider 750 or above as a good CIBIL score for a car loan. Hence, checking your credit status now and then is a good practice.
4. EMI Tenure
It is important to understand that after you have paid your EMI, you should be left with enough income for your monthly expenses. The ideal rate of EMI is 30-35% of your total income. So, when the tenure of the loan is longer than EMI is lower, but you have to pay higher interest over the respective period. A shorter tenure of loan leads to good savings, but you have to pay a large payment every month. Hence, have a clarity of your income and expenses to decide the tenure of EMI accordingly.
5. Payment Options
A higher amount of down payment and a loan with a shorter tenure and lower interest rates is a good choice.
Dos and Don’ts for Good CIBIL Score
As a car needs regular maintenance, your CIBIL reports too require a constant check. There are certain things that you can do to maintain a good CIBIL score for a car loan.
Do’s
- The easiest way to avoid damaging your credit history is to make all the payments on time. Settle out any defaulted payments as soon as you can.
- Ensure that you do not avail of numerous loans because too many lines of credit increase your credit utilization rate. It reduces your credit score and can result in the decline of subsequent loans.
- Keep in mind that you check your credit score yourself because when financial institutions check it on your behalf, they lower the score. Also, scour for errors and flag them as only then will they be rectified.
- Make your credit card payments on time, as paying only the minimum amount will pile up the rest of the amount.
Don’ts
- Refrain from applying for a new loan application if your applications have been rejected in the recent past.
- Do not avail too many loans because it shows your inefficiency in handling finances.
- Make an aim to not use more than 30% to 50% of your credit limit. This shows limited credit utilization and better handling of funds. It also improves your credit score.
- Do not delay your repayments towards loans or credit cards on a regular basis because approval of a car loan for CIBIL defaulters becomes a hassle.
Getting a Car Loan Without CIBIL
A good CIBIL score helps you bag a car loan with utmost ease. It also helps attract a better rate of interest. But what if you do not have a credit score or credit history? With the CIBIL score being the center of attention in the credit world, it might seem impossible to get a car loan without CIBIL. But that is not the case. Many financial institutions still give out loans but at a higher rate of interest. They also consider the following factors while scrutinizing your eligibility for a loan application. These factors also come into play when you need a car loan with a low CIBIL score.
- Income: Proving to the lender that you are financially sound and have a stable income to repay the monthly installments will increase your chances of approval. Salary slips, profit and loss statements, etc., need to be submitted to the lender.
- Guarantor/Co-applicant: Applying with a co-applicant who has a more sound income and higher credit score can bag you the approval. You can also choose a guarantor to build the trust of the lender for repayments.
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Frequently Asked Questions (FAQs)
What is the minimum CIBIL score for a car loan?
The minimum ideal CIBIL score for a car loan is 750.
Can I get a car loan with a 650 CIBIL score?
As a yardstick, the financial institutions consider a 750 or above CIBIL score to grant a loan. A score lower than 650 is considered average for acquiring a loan.
Will your CIBIL score affect the interest rate for car loans?
Yes, the CIBIL score affects the interest rate offered to you. Lower interest rates will be charged for a higher CIBIL score and vice versa.
