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CIBIL Score: Car Loan

Everyone dreams of owning a comfortable home and a plush car someday. Unlike earlier, when a car was a luxury commodity, it is a bit of both luxury and necessity for a large section of the Indian masses. The convenience of owning a vehicle need not be explained, making it a utilitarian product in the present day and age. The average age in which today’s youth purchases a car has gone down. This is because of the rising income at disposal among youngsters, enabling them to own one at a comparatively younger age than their previous generations. Another reason that makes purchasing cars easier than before is the availability of car loans that are readily offered to individuals at a minimum age of 21 years, earning a certain monthly salary and has a good CIBIL score. Now let’s look at how your CIBIL score determines your car loan eligibility.

Importance of your CIBIL score for a car loan

Here are some reasons why lenders check your CIBIL score:

Represents your credit health : Your CIBIL score is a 3-digit dynamic number that is a measurement of your creditworthiness, i.e., your loan eligibility. Like all loans, the loan approval process undertaken by banks and financial institutions is the same for car loans as well. Your CIBIL score, mentioned in the CIBIL report, makes lenders aware of your credit history, timeliness of debt repayments, number of existing loans, frequency of loan applications and rejections, etc. These give them an insight into the prospects of retrieving debt from you within the pre-determined time, proving to be the deciding factor behind your car loan application approval or rejection.

Your CIBIL score depending on the range : Different ranges of CIBIL score have different things to say about your credit history and debt repayment behaviour. The minimum CIBIL score required for seamless and hassle-free loan approval is 750, which is considered to be a good score. The lower your CIBIL score, the lesser will be your chances of getting a car loan.

Determines the rate of interest on car loan : With a CIBIL score below 600, you have a very slender chance of getting a car loan. Even if you do, it will be against collateral or on unfavourable terms and conditions like steep interest rate. The higher the CIBIL score, the greater will be your scope of securing a car loan. Therefore, evidently, a high CIBIL score will not only make you eligible for a competitive interest rate, but you will be in the position to negotiate on the rate of interest and land yourself a better deal. In contrast, a low CIBIL score reflects negatively on your credit history. This raises a red flag for lenders, making them instantly raise the rate of interest, if they offer you a car loan.

Determines the car loan amount : Similar to car loan eligibility, a high CIBIL score also enables you to command a position where you can bargain on the loan amount and get a better deal. Lenders often agree to offer a higher loan amount to customers with a good credit history as they are interpreted as quality customers. Hence, they make an effort to retain them. However, this would not be the case if you have a low CIBIL score.

Good CIBIL score for car loan in India

Your CIBIL score says about your chances of securing a car loan:

750 – 900: There are high chances of a borrower being eligible for a car loan with scores in this range. What’s more, the car loan approval process will be seamless and hassle-free. Besides, as discussed before, you will also be able to negotiate on the interest rate and loan amount.

600 – 749: These middling scores minimise your chances of getting a car loan. If your score is within this range, your lender will mostly evaluate your loan eligibility based on other parameters such as monthly income, number of existing loans, employment stability, etc. However, it will be comparatively time-consuming and not as streamlined and smooth as when scores are over 750.

300 – 599: A CIBIL score less than 600 adversely affects your chances of securing a car loan as it reflects poor debt repayment behaviour. The chances of your car loan application getting rejected are high. However, in case a lender agrees to offer a car loan, it will be against a low loan amount and high interest rate, or against collaterals like shares and assets, gold, FDs, etc. If your car loan has got rejected, it’s recommended that you improve your CIBIL score rather than apply for loans with other lenders as that will reduce your score further.

How to improve your eligibility for a car loan

Want to apply for a car loan? Here’s what you should know before you apply for one:

Avoid using beyond 35% of your credit card limit to prevent your CIBIL score from being adversely affected.

Make it a habit to pay off your entire dues every month within the due date rather than paying only the minimum outstanding amount to avoid your CIBIL score from falling. When the remaining balance is carried forward to the next month, banks charge a heavy interest rate.

If you are in the habit of missing out on debt repayment every month, opt for the auto-debit facility that gives your bank a mandate to debit the monthly car loan from your account on a certain date every month. Make sure that you maintain the necessary balance in your account on this date, so that the bank does not levy a heavy interest every time there is an unsuccessful auto-debit.

Pay your dues on credit card and existing loans within the due date every month to improve your CIBIL score, thereby, improving your chances of being eligible for a car loan in the future.

Eliminate financial behaviour like taking cash withdrawals against your credit cards as this is seen as credit hungriness, arising from financial stress.

Avoid being a loan guarantor. If the primary accountholder defaults in paying dues on time, it will not only affect your credit history and CIBIL score, but the bank might also ask you to pay the debt on his/her behalf.

Analyse your credit report regularly to check whether there are repetitions or omissions, or mention of fraudulent transactions. Such information in your CIBIL report minimise your score. In case you find such information, you need to raise a CIBIL dispute before applying for a car loan.

Last but not the least, read the loan document thoroughly and clear your doubts before the loan is finalised, so that you can eliminate the chances of financial behaviour in the future that may affect your CIBIL score.

How to get a car loan with a low CIBIL score?

Having a high CIBIL score definitely has its share of advantages when you apply for a car loan. However, the question is – “What are your chances of securing a loan with a bad or zero CIBIL score?” While we have discussed what a bad CIBIL score means, let’s have a closer view of what is meant by a zero CIBIL score. You will have a zero CIBIL score when you don’t have a credit history – you have never applied for a loan before or have never owned a credit card or own a credit card that you have never transacted with.

Collateral loan: As mentioned before, some lenders may agree to offer a car loan even if you have a low CIBIL score, but such loans will be against collateral. The reason why it may be comparatively easier, specifically in the case of a car loan, is that the car will be pledged to the lender till the time you have paid off the entire loan amount.
Check if your employer has tied-up with a lender: Firms have tie-ups with leading banks and financial institutions. If you work for a corporate, chances are that your employer may have a tie-up with a lender as a part of corporate partnerships. In such cases, lenders offer better loan deals or concessions on interest rates to employees of firms that they have collaborated with.
Apply for a joint car loan with a family member or spouse: If your spouse or any family member has a good CIBIL score, you can opt for a joint car loan application, which will be analysed based on both of your CIBIL scores.
Get a guarantor: Getting a guarantor among your friends or family with a good CIBIL score will improve your chances of being eligible for a car loan, despite your score being low. In such cases, your guarantor’s CIBIL score will be considered while assessing your car loan application.
Other Sources: It is often easier to get a car loan with a low CIBIL score from non-banking finance companies in comparison to banks. However, the approved car loan may be accompanied by a higher interest rate than that of the banks.

FAQs on CIBIL Score for Car Loan

What is the CIBIL score required to secure a car loan?

The minimum CIBIL score required for being eligible for a quick and streamlined car loan approval process is 750. Besides, lenders may also evaluate other parameters like monthly income, number of existing loans, income to debt liability ratio, etc. to assess car loan eligibility.

Can I get a car loan without a CIBIL score?

Yes, you can secure a car loan without a CIBIL score, though the approval process will be more time-consuming and hassled. Besides, the terms and conditions you will be offered may not be as favourable as offered to those with a high CIBIL score. For instance, your loan amount may be lower or interest rate may be higher or may have a lesser tenure. You stand a higher chance of securing a car loan with a low CIBIL score, as compared to other types of loans, as your car serves as collateral till you have repaid the entire car loan.

I have a low CIBIL score. Will my taking a guarantor improve my chances of getting a car loan?

Getting a guarantor is one of the options you can explore if you have a low CIBIL score. The guarantor may be anyone from your friends or family with a good CIBIL score. In such car loan applications, your guarantor’s CIBIL score will be evaluated during the car loan approval process.

Does paying only the minimum amount due against my credit card bill affect my CIBIL score?

Yes, not paying the entire outstanding amount due at one go adversely affects your CIBIL score. Make it a habit to pay off the entire dues every month within the due date rather than paying only the minimum outstanding amount. When the remaining balance is carried forward to the following month, banks levy a heavy interest rate on it.

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