CIBIL Score for Car Loan

There are specific eligibility criteria that you need to fulfil before applying for a car loan. The general eligibility criteria comprise prerequisites like a minimum age of the applicant should be 21 years, a minimum monthly salary, and the applicant should have a good credit history. Good credit corresponds to a good credit CIBIL score, which is predominantly the deciding factor for the acceptance or rejection of the application for a car loan.

A CIBIL score is a 3-digit number highlighted in your credit report, which reflects your credit worthiness. This CIBIL score generally ranges from 300 to 900. The higher the credit score for a car loan, the higher the chances of seamlessly getting your car loan application approved.

Minimum CIBIL Score for a Car Loan

Generally, it's a norm that the banks or financial institutions do not announce what would be the perfect score for the approval of a car loan. However, it's safe to assume that if the CIBIL score for a car loan is above 600, that's good; if the score is 750 or above, it is more favourable. Talking about the minimum CIBIL score for a car loan, if it's above 750, there are high chances for your car loan application approval.

The applicants are often surprised to find that their application for a car loan gets rejected due to a poor credit score. Also, there is a lack of awareness regarding the need for credit scores to approve car loans. Different credit authorities allocate credit scores like TransUnion CIBIL. It is one of India's four authorised credit bureaus which allocate the credit score; the other authorities are Experian, Equifax, and CRIF High Mark. 

Furthermore, when there is no clearly defined minimum CIBIL score for a car loan, it's always favourable to have a high credit score. It’s generally advised to have a score of 750 or above as it provides an excellent chance to approve a car loan and guarantees that you would get the best interest rates on your car loan.

Why is CIBIL Score Important for a Car Loan

A good CIBIL score for a car loan can be very important when you are looking to take a car on loan. The CIBIL score for a car loan is essential as it affects many factors like:-

• Helps to determine the loan amount: The CIBIL score for a car loan is proof of your creditworthiness, and if you have a good repayment history, you can easily avail a car loan of a more significant amount, while if you have a low CIBIL score, you will face difficulty in getting the desired loan amount.

• Governs the approval or rejection of the car loan application: CIBIL score for a car loan is a measure of your creditworthiness, which helps the lenders to decide whether to approve your loan application or not as it is based on your past repayment behaviour.

• Determines the interest rate: If the applicant has a higher CIBIL score for a car loan, it also reflects that he can hold greater financial responsibility. Therefore, there are chances that the lender would offer you the car loan at a lower interest rate, and you would have the upper hand in negotiating the interest rate. On the contrary, a low CIBIL score for car loans generally poses a risk for the lender; this is why they raise the interest rate.

If you have a good credit score, the bank/lender provides you with better access to special offers, including benefits like low processing charges, zero down payment, etc. Whereas in case of a low credit score, your loan requests can be denied or, if approved, would attract a higher interest rate, the down payments could also be on the higher side.

How Your Credit Score Impacts Your Car Loan

The following table shows how the CIBIL score affects your car loan approval in terms of eligibility criteria, the interest rate offered, and other significant factors.

How to Improve Your CIBIL Score for a Car Loan?

Since a low credit score can have a negative impact on your car loan approval, here are some of the ways that will help you to improve your credit score:

• First, you should know what your credit score is by checking your credit report.

• Dive deep through your credit report for the mistakes or errors from your end and rectify those errors.

• Avoid applying for any new credit requests within a short period.

• You should try to settle your outstanding dues or defaulted payments as early as possible.

• Make sure to pay all your credit bills and due EMIs on time.

• Limiting your credit card spending to less than 30% of your credit limit is considered a good habit to build a decent credit score.

You should keep in mind that there are no quick fixes or hacks to improve your credit score within a short period as it is an ongoing process that will take time and effort to fix. However, you can expect to see improvements within a few months.

Things to Keep in Mind Before Applying for a Car Loan

Many of you may be making plans to buy your dream car nowadays; owning a car has become more convenient with the help of car loans. You must remember the following points before applying for a car loan.

• You should monitor your credit score; if you have a score of more than 750, this  means it is a very good CIBIL score for a car loan as you can quickly get a car loan at competitive interest rates.

• You should check your credit report for any discrepancies or payment defaults. Also, you should avoid applying for multiple loans, credit cards, or credit reports within a short time.

• You should finalise your budget before proceeding with the loan application. The budget shall also include the registration costs, insurance premium charges, car accessories costs, and the car's base price.

• You should also have an idea about the loan tenure, which is convenient for you, as the loan of five-year tenure means lower monthly EMIs than a three-year loan, but you need to pay additional interest charges.