CIBIL Score for a Car Loan

Your credit score is the reflection of your creditworthiness based on your past behaviour with credit and your current debts. A good credit score of 700 or more can help in faster approval of your car loan at more favourable terms. 

 

The higher your score, the more likely you are to get pocket-friendly financing for your new car. For instance, if you have a score of 760, you may get a higher loan amount and a lower interest rate than with a score of 690.

This makes it crucial for you to check your CIBIL score and the minimum requirements of CIBIL score for car loan eligibility.

When you apply for an auto loan, your score is one of the first things that a financial institution checks when assessing your application. Not meeting or exceeding the minimum required credit score for a car loan impacts the following aspects of your journey:

• Approval Timeline

Banks and Non-banking Financial Companies (NBFCs) consider a good credit score as a positive indicator. It indicates responsible repayment behaviour and that you are likely to be a credit-conscious borrower. Thus, with a higher score, you can get quicker approval on your application. 

• Cost of Borrowing

The better your CIBIL score, the more competitive will be the rate of interest offered to you. This allows you to save more during the repayment journey. With a low score, you may end up paying a higher interest. 

• Loan Terms

If you have an excellent credit history, you may expect better terms for your car loan, including a longer repayment tenure, depending on the lender’s terms and conditions. This can help make your EMIs more affordable and doesn’t strain your monthly budget.

• Loan Amount

Your credit score also determines the car loan amount you can get and the down payment you will have to make. With a better credit score, the Loan-to-value (LTV) ratio offered to you may be higher. 

 

This means that you get a higher quantum of funds as a loan and need to make a small down payment. For instance, Aarti may get an 80% LTV with a credit score of 750, while Arnav may get a 60% LTV with a credit score of 650. 

 

To know how the approval of a car loan is generally related to different CIBIL score ranges, see the table below:

Even two borrowers with the same income, age and job may get different auto loan terms if their credit scores are different. In the same way, if your credit score changes over time, the loan terms you are offered will also change. 

 

To better understand this, consider an example. Say Arnav applies for a car loan of ₹3 Lakhs and has different CIBIL scores at different stages in his life. Take a look at the possible impact of the score on loan terms in the table below:

Disclaimer: The example given above is for illustrative purposes only, as loan eligibility and terms depend on other parameters as well. 

 

By maintaining a high CIBIL score, you can get:

• Higher loan amounts

• Quicker approval and disbursal (subject to the lenders’ policies)

• Competitive rates of interest 

• Longer repayment tenures

On Bajaj Markets, you can check your credit score for free to determine your credit health before applying for a four-wheeler loan. Follow these simple steps:

1. Click on the ‘GET YOUR SCORE’ option on this page

2. Enter your personal information, including your name, date of birth, PAN details, mobile number, and email ID

3. Select your employment type and agree to the terms and conditions

4. Click on ‘GET REPORT’

5. Enter the OTP received on your registered mobile number to access your credit score

 

You can even check your CIBIL score through the official TransUnion CIBIL website (www.cibil.com/freecibilscore).

Boosting your credit score is a gradual process and requires commitment to good credit habits. Check your score before you apply for a loan, and use the following strategies to improve your creditworthiness:

• Repay Credit on Time

Since responsible credit usage contributes to a higher credit score, ensure that you pay EMIs of your existing debts on time. Similarly, pay your credit card bills by the due date and in full to boost your score. 

• Reduce Existing Debt

Higher outstanding balances lead to an increased debt-to-income ratio and may lower your credit score. Clear your existing debts to improve your CIBIL score.

• Ensure Credit Diversification

Having a healthy mix of credit, such as secured and unsecured loans, shows that you can manage different types of credit facilities. Borrow different types of credit and repay them responsibly to increase your score. 

• Avoid Multiple Applications

Lenders generally conduct a hard inquiry of your credit report to check your risk of default when you apply for a loan. Refrain from making multiple car loan inquiries to avoid a negative impact on your score.

• Check Your Credit Information Report (CIR)

Your CIR may sometimes display incorrect information due to inaccurate reporting or fraudulent loans in your name, which may pull your score down. Monitor your report periodically to check for such issues and raise a dispute with the credit bureau.

While your CIBIL score impacts your car loan eligibility, there are several other factors that lenders consider when approving your application. These include:

• Income

Financial institutions take your earnings into consideration to determine your ability to repay a car loan on time. A stable income increases the possibility of loan approval.

• Existing Debt

Lenders assess your Debt-to-income ratio (DTI) to ensure that taking a car loan will not overextend your finances. A high existing debt may make it harder to secure a loan. A DTI of 30% or less is ideal for fast approval of your car loan.

• Employment Type and Stability

Having a job with a well-known company or the government can help you get quicker approval on your auto loan. Changing jobs right before applying can hurt your chances.

• Banking Relationship

If you have an established or long banking history with the lender, your car loan application may be approved quicker.