Everyone dreams of driving their own car, but not everyone can buy their dream car due to financial constraints. With the help of car loans, you can make your dream of owning a car come true. With the help of a car loan, you can quickly repay the loan amount over a period in easy and affordable instalments.
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.
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.
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.
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.
CIBIL Score Range
300 – 599
When your CIBIL score for a car loan is less than 600, it will adversely affect the chances of your loan approval, and there is a high probability that your application might get rejected. However, if the lender grants you a car loan on this CIBIL score range, the loan amount would be very low, and the lender would charge a high-interest rate. There are chances that the bank/lender can ask for collateral like fixed deposits, assets, etc.
600 – 749
With an average CIBIL score for a car loan, there are chances that your car loan application can get approved. Still, the lender/bank would closely check and verify other factors like income, existing loans, your employment stability, etc. In this case, the loan approval process might take longer than usual, and you would likely not get the best interest rates you desire.
750 – 900
If your CIBIL score for a car loan is in this range, there are high chances of your application for a car loan being approved. Furthermore, the car loan approval process will be swift, and you will also get an opportunity to negotiate the best interest rate; the loan amount offered would be on the higher side. The lender can give some additional offers like low zero down payment or low processing charges.
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.
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.
You can easily check your CIBIL score for a car loan online. You just need to register yourself on the official website of CIBIL to check your credit score and get a credit report.
Generally, a CIBIL score of 750+ is considered a good credit score for the seamless approval of your car loan.
Yes, there are methods to get a car loan even with a low CIBIL score. But you need to assure the lender that you possess a stable source of income. In some cases, you may also need to arrange a guarantor for your loan or go with a lower loan amount or higher interest rate.
Different banks/lenders have their own eligibility criteria. The CIBIL score reflects good credit history, and a higher income vs. debt-liability ratio are some of the significant factors the lenders consider before granting car loans.
In order to get a car loan without a CIBIL score, you need to prove your income to support the instalment payments; for that, you may need to present records of repayments of your previous bills. The lender may also ask for collateral before approving your car loan without a CIBIL score.
In case a CIBIL defaulter wishes to get a car loan, the amount will vary based on collateral presented to the lender against the loan. Since in case you default again on the loan payment, the collateral acts as the security.