Every individual wishes to own a car, but few can afford one. Individuals might use car loans to fulfil their dreams of owning a car. These car loans not only make it easier to acquire a car, but they also provide you enough time to pay back the loan in manageable instalments. However, there are a few prerequisites that must be met before applying for a car loan.
The basic eligibility criteria for getting a car loan in India depends on several factors which include minimum age of 21 years, a minimum monthly salary requirement, and a reasonable credit history. A strong credit history is the consequence of having a strong credit score, which can be the determining factor over whether a car loan application is accepted or rejected. So, what is a minimal CIBIL score for car loans? Continue reading to learn more about this.
What Is A Good CIBIL Score To Get A Car Loan?
The Credit Information Bureau (India) Limited or CIBIL, was established in the year 2000 with the purpose of collecting information on a person’s loans and credit cards and maintaining a record of it in order to build a database of borrowers. It compiles this database by assembling information from banks regarding a person’s borrowing and payments for loans.
A credit score is a 3 digit number which is part of an individual’s CIBIL report. In general, a CIBIL Score varies from 300 to 900, and the higher your score, the more likely you are to be approved for a loan. While there is no guaranteed limit for credit score to avail a car loan, having a high credit score is usually advantageous. In general, a credit score of 750 or above is recommended to have a good chance of being approved for a loan and receiving the best interest rates.
A good credit score will not only increase your chances of getting a car loan approved, but it will also give you better access to special offers. Such offers include 100 percent car finance, i.e. no down payment, lower than typical processing fees, special low-interest rates, and so on.
A CIBIL score says about your chances of securing a car loan:
- If your CIBIL score ranges from 750 to 900, then there will be higher chances of a borrower being eligible for a car loan with scores in this range. Furthermore, the car loan approval process will be seamless and hassle-free. In addition to that, you will also be able to negotiate on the interest rate and loan amount.
- If your CIBIL score ranges from 600 – 749, then lender will analyze your car loan eligibility based on various factors including monthly income, number of current loans, employment stability, and so on.
- If your CIBIL score ranges from 300 – 599, then your car loan application is likely to be declined. However, if a lender agrees to provide a car loan, it will be for a low loan amount with a high interest rate, or against security such as shares and assets, gold, FDs, and so on. If your car loan has got rejected, it’s recommended to improve your CIBIL score rather than applying for loans with other lenders as this type of practices will reduce your score further.
How Can I Improve My CIBIL Score To Secure a Car Loan?
Here are some of the suggested ways to improve your Credit score:
1. Avoid Delayed and Missed Payments:
Your CIBIL Score will be negatively impacted if you consistently miss payments on credit cards or loans. Make sure you create reminders for all of your debt payments. This can help you get a good credit score for car loans in the future, as well as better loan terms.
2. Stop Over-Utilizing Credit Limit:
It is a sign that you are unable to control your spending if you use up your full credit limit. Make sure you’re not using more than 30 percent to 50 percent of your whole credit limit. This can help you maintain a low credit utilization rate and improve your credit score.
3. Don’t Apply For Multiple Loans:
Do not apply for a new loan right away if your previous loan applications were rejected. In such instances, there is a greater possibility of a second loan rejection. Your credit score will drop with each loan denial. Prioritize raising your credit score in order to become loan-eligible. After that, you can apply for a new car loan with improved terms.
While there is no defined CIBIL score requirement for vehicle loans, it is suggested that you have a score of at least 750 before applying. This can assist you in avoiding loan rejections and obtaining the best car loan rates possible.
