TransUnion Credit Information Bureau (India) Limited (CIBIL) is the oldest credit information and insights company that was established in the year 2000 in India. The aim of the organization is to gather information from credit institutions across the country such as banks and non-banking financial companies (NBFCs). This information is used by the organization for Credit Information Report (CIR) such as CIBIL report for borrowers.
Your CIBIL report is generated on the basis of handling of credit cards and loans. Not only this but also your CIBIL score explains how well you have handled your previous credit by assigning a rating ranging from 300 to 900. To get your car loan approved, your CIBIL score should be at least 750.
To obtain a car loan, you should qualify certain eligibility criteria like your minimum age limit should be at least 21 years, having a regular source of income, as well as having a strong credit history. If you have a strong CIBIL score, the chances of getting your car loan application approved is higher.
Reasons for Your Car Loan Getting Rejected
It is often observed that when someone approaches a bank to finance their dream car, their loan gets rejected despite meeting most eligibility criteria. One of the reasons for a bank to reject a car loan is a bad credit score i.e, a score that is below the minimum requirement. This leaves applicants confused as to why they have a low credit rating.
Here are some of the reasons for a poor credit rating.
- Late payments: If payments towards credit cards or loans are delayed time after time, it works to lower credit scores as it points to improper financial management.
- Overdue credit cards: Even though credit card companies only require a monthly minimum amount to be paid to avoid late fees, the balance amount outstanding is still considered overdue. Consistently rolling over dues by paying only the minimum amount lowers CIBIL scores.
- Defaulting on payments: Failing to make payments towards any line of credit i.e. credit card, loans or overdrafts etc. also constitutes improper financial management which, again, serves to lower credit scores.
- Rejected loans: If a car loan has been rejected and another one is applied for immediately after said rejection, the second loan also stands a high chance of being rejected which also leads to lower credit scores.
- Too many car loan applications: If applications for car financing is made to multiple finance houses at the same time, they all end up requesting for the customer’s CIBIL details at the same time. This is viewed as a negative aspect and works to lower credit scores.
Top 5 Things to Remember While Applying for a Used Car Loan
The following are the top five things that you need to remember while applying for a used car loan:
- Browse and compare deals
You should always look out for the best deal. Never decide on the lender as each lender will offer you a different deal. Avoid taking the first loan that is offered to you and try to compare interest rates with various lenders. In today’s digital age, you can even compare and scout for exciting deals online that are suitable to your needs.Ensure weighing all the offered deals and then take the final decision.
- Learn about the Equated Monthly Instalments (EMIs)
The EMI aspect of the loan for used car can sometimes get tricky and confusing as it is not as simple as Principal + Interest. In addition to the EMIs, also has several other components such as the penal interest, annual maintenance and EMI bounce charges. Make sure to take into consideration all these factors while calculating the actual EMI instead of only the interest rate.
- Periodically checking your credit score
A credit score is a numerical representation of an individual’s credit worthiness. It ranges from 300-900, 900 being the highest. The credit score is computed by the credit bureaus in the country by taking into consideration your current financial status and historical financial data. Generally, a CIBIL credit score of 750 and above is considered as ideal by lenders like banks and non-banking finance companies. Even if you have a low CIBIL score, some banks will still be willing to offer you credit. It is a good practise to check your credit score from time-to-time as it gives you an idea of your credit status. There are several simple ways to improve your credit score like paying bills on time, limiting credit usage, not closing old credit accounts and so on.
- It is better to opt for lower EMI for a longer period
First of all, you must realise that once your EMI is paid, you should have enough money left over to cover your other monthly obligations. Therefore, it is best to keep your monthly EMI below 30% of your gross income. The longer the duration, the cheaper your EMI will be automatically, but you will pay substantially more in interest over the course of the loan. On the other hand, a shorter EMI produces better savings, but you must make larger monthly payments. As a result, you should be aware of your monthly needs and choose your EMI term accordingly.
- Analyse other payment options
You can either pay a large amount of down payment and go for a loan with a shorter tenure and avail lower interest rates. If you have funds to pay for your used car in cash, especially if the interest you are receiving from your bank is lower than what you could end up paying as interest to the lender, the second option is to make a larger down payment and avail lower interest rates or shorter tenures on the loan.
Hope the aforementioned points will help you take a sound decision before finalising the loan and signing the agreement. Make sure to double check the terms and conditions of the loan forms carefully. You can even take advice from financial experts regarding the loan paperwork. It is better to be cautious beforehand than dealing with the issue later.
How to Check your CIBIL Report
CIBIL has provided an online facility to help potential borrowers check their Credit Information Reports before they apply for their car loans. It is a paid service; currently Rs.550 is charged to obtain the report. The steps to follow in this case are:
- Apply for your credit score on the CIBIL website.
- Enter basic information like name, identity proof details and date of birth.
- Provide relevant contact information.
- Make the payment to complete the process.
After the application process is complete, they will get in touch with you and inform you of your exact credit score.
What is a Good CIBIL Score for a Car Loan?
Banks and financial institutions never announce what the perfect score for a car loan would be. However, it is safe to assume that a score of over 600 is good and a score of 750 upwards is more favorable.
Do’s and Don’ts for Good CIBIL Score
Like with everything else even CIBIL Reports require constant maintenance. There are certain activities that you can indulge in to keep credit scores looking good. There are also some activities that need to be avoided in order to prevent negative effects to the credit score.
- Do’s
- You need to set reminders to pay your EMIs on time and make sure that you don’t miss the deadline.
- It is recommended to maintain old credit card with an aim to extend your credit history.
- Make sure to pay your complete EMIs as well as credit card bills.
- It is advisable to go for loans with longer tenure.
- Check your CIBIL report and score minimum once a year.
- Don’ts
- Avoid missing credit card bill payments or EMIs towards your current financial obligations.
- It is advisable not to go a credit utilization ration of more than 30% because it affects your chances of future credit as well as preferential personal loan rate of interest.
- In case you are looking for a loan, avoid applying loans from multiple lenders because multiple enquiries will affect your CIBIL score.
- Don’t ignore the errors present in your CIBIL report because inaccurate reporting will provide negative image on your CIBIL score.
Ways to improve your CIBIL Score to avail yourself of a car loan:
Some of the ways to improve your CIBIL score are as follows:
- Firstly, you need to know what your CIBIL score is. You can do this by checking your CIBIL report.
- Go through your CIBIL report in a detailed way and find out the errors or mistakes present in your report and try to rectify those mistakes to improve your CIBIL score.
- Never apply for a new credit request in a short period of time.
- Try to settle your outstanding dues or default payments at the earliest
- Ensure to pay your EMIs and credit card bills on time.
- It is recommended to pay off all your outstanding dues as well as defaulted payments in order to improve your CIBIL score.
- Try to spend only 30% of your credit card limit as it is considered good to maintain a good CIBIL score.
There are no quick tips through which you can build your CIBIL score instantly. It is an ongoing process where you have to follow the above mentioned steps and you will notice the improvements within a few months.
FAQs on CIBIL Score for Car Loan
- Can I get a car loan with a credit score of 600?
- How to make sure my credit score stays on the safer side?
- Is CIBIL score checked for car loan?
- What should I do to avail a car loan if I have a low CIBIL score?
- Is CIBIL score of 750 considered good to avail a car loan?
- Why is CIBIL score so important while applying for a car loan?
- Can CIBIL score affect the interest rate of car loan?
- Does CIBIL score affect your eligibility of getting a car loan?
- Can a defaulter get a car loan?
Yes, with a low credit score, it is still possible to obtain a car loan. The drawback is that, in comparison to borrowers with great credit scores in the region of 750 and above, you are probably going to pay a higher interest rate.
You can take various steps to keep it on the safer side. You can make all your credit card payments on time or take a minimum number of loans in your name.
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.
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.
Yes, a CIBIL score of 750 is considered good to avail a car loan.
CIBIl score is often considered the very first parameter to check an individual’s credit worthiness. That is why it is of importance while applying for a car loan.
Yes, CIBIL score can affect the interest rate of car loan. Generally, a high credit score translates to a lower preferential interest rate on a car loan.
The eligibility criteria of getting a car loan varies from banks or lenders. The CIBIL score shows a higher income vs debt-liability ratio, and a strong credit history which the lenders take into account before approving car loans.
If you are a CIBIL defaulter and you want to apply for a car loan, the loan amount will be decided on the basis of a collateral presented to the bank or NBFC against the loan.
CIBIL score looks good? Apply and choose between best Car Loans in India
Read More on CIBIL
- CIBIL
- Good habits can make good CIBIL
- Hidden facts about CIBIL Score
- CIBIL TransUnion Score 2.0
- CIBIL Marketplace
- Correlation between Credit Rating and Debt
- Resolve CIBIL Errors
- How CIBIL is Important
- CIBIL Score Verses Report
- Solutions for your CIBIL Credit Report Problems
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Know More About CIBIL
TransUnion CIBIL is one of the leading credit information companies in India. The company maintains one of the largest collections of consumer credit information in the world. CIBIL Score plays a key role in the lives of consumers. Banks and other lenders check the CIBIL Score of the applicants before approving their loan or credit card application. Consumers can visit the official website of CIBIL to check their CIBIL Score and Report. CHECK YOUR CIBIL SCORE now.
