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What Is the Required CIBIL Score for Car Loan?
What Is the Required CIBIL Score for Car Loan?

A car is often considered as a status symbol in Indian society. Many people buy a car just to fulfil their dream of owning one. A couple of decades ago, owning a car was only possible if you were loaded with money and back then, it was out of reach for the common man. Things have changed today, all thanks to the easy finance schemes available. To buy a car today, you do not have to pay the full cost upfront. The cost can be split into monthly small EMIs and can be paid over the period of 5 years to 7 years loan period. To be eligible for this fantastic easy finance facility, you need to have a good CIBIL score. In this article, we will talk about the required CIBIL score for a Car loan in India.

Background of CIBIL

CIBIL score is the score given by CIBIL (Credit Information Bureau India Limited) to an individual. The score rates the creditworthiness of the individual based on its past records of credit taken from banks and other registered financial institutions. The data of the loan and re-payment transactions collected from the banks and the analysis are mentioned in the credit report of the individual. The credit report and CIBIL score is accessible to the banks and even to the individual. The bank requests for the credit report from CIBIL to assess the creditworthiness of an individual, if they have received a loan or credit card application from that particular individual. CIBIL has all the past records and transaction status of the loan accounts. It also keeps records of all the information related to credit cards, the amount due, date of payment, outstanding balances, credit limit, credit utilisation ratio etc. All these go in the making of the credit report of an individual and hence, the CIBIL score makes for a summary of the financial health of an individual. CIBIL score ranges anywhere between 300 and 900. As a thumb rule followed by banks across India, a score of 750 is considered as a benchmark for easy processing and approval of car loan.

CIBIL score for Car Loan

Many a time, someone approaches the bank to finance their dream car and their loan is rejected, despite meeting most of the eligibility criteria. One of the main reason we see today is bad CIBIL score which causes the rejection. Often, the applicants are confused by the low CIBIL rating they have. Below are some of the reasons for low CIBIL rating.

CIBIL Score requirement applying for a Car Loan

Sometimes, when someone approaches a bank to finance their dream car, their loan gets rejected despite meeting most eligibility criteria. A particular reason for banks to reject your car loan application is a bad credit score i.e. a score that is below the minimum requirement. This situation may confuse the applicant as to why they have a low credit rating.

Here are some of the reasons for a poor credit rating.

  • Delayed payments

If your payments towards your monthly EMIs or credit card are delayed, time and again it will have an adverse effect on your CIBIL score.

  • High Credit Utilisation Ratio

Even if you submit your payments in full within each billing cycle but spend above 50% of your total credit limit, your credit utilisation is recorded as high and hence, you will have low CIBIL score.

  • Making Too Many Credit Applications.

If you have a thing for applying for all the credit cards that come your way, then you a penchant that needs to be given up. Each time you make an application for a line of credit, there is an in-depth algorithmic and human investigation on your CIBIL parameters. Each time this happens, your credit appetite is exposed and your score comes down by a little margin on each occasion.

  • New To Credit Lines

Remember that if you have been issued your first credit card or loan, and you have made just a few EMI payments, the CIBIL score will naturally be quite low.

This is a good opportunity where the service time of your loan and timely repayments will keep your CIBIL score on a good start.

CIBIL Report Discrepancy 

Let us not forget that the CIBIL report comprises of a large amount of data which is collated from various sources such as banks and other credit bodies. There are always chances that the data on your record may have some discrepancy that is keeping your score low. A good way to avoid this is to check your CIBIL score frequently.

Top tips to remember when going for Car Loan in India

  • Research and Compare deals on the internet

The research will always help you gain or enhance your knowledge with regards to what’s available in the market. Never go for the first lender deal made available to you. Every lender will offer a different deal. If you go the extra mile, you will be able to secure the best deal by comparing deals against each other and choosing the one that suits you best.

  • Know about the EMIs before choosing a loan

The EMI aspect of a car loan can be tricky and time consuming. In addition to the normal principal amount and interest, there are other factors like tenure, penal interest, annual charges, administrative charges etc. Make sure you understand everything about the car loan before entering into the contract.

  • Check your CIBIL score before filling the loan application

Most banks and other lending companies look at the CIBIL score of the individual before successfully clearing the loan. It is recommended to check your latest CIBIL score before applying for a car loan. If the CIBIL score is low, then you can take measures to improve it as low CIBIL rating will reject your car loan application.

  • Go for lower EMI for a longer period

EMI facility makes paying loan amount easy and stress-free. It is however important to carefully select the tenure and EMI amount. You should check first if the EMI fits into your monthly budget. A thumb rule is not to go for EMI more than 30% of your monthly income. Shorter-term EMI will offer more savings, but you need to ensure that you can shell out higher amounts on EMI every month. Hence, it is recommended to carefully consider the tenure and the EMI amount on the car loan.

 

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