Cibil Score for Car Loan
Owning a car is no longer a luxury but a necessity. And to ease the process of owning it, banking institutions introduced car loans. However, availing a car loan is not as easy as it seems since there are a lot of requirements that need to be fulfilled.
All About Car Loans
Although there are many options available when it comes to finalizing a car loan lender, you must first fulfill the eligibility criteria. The requirements to get a car loan are:
- Minimum age should be 21 years.
- A regular monthly income
- Good credit history
- Credit score of 750 or above
CIBIL Score
The most important factor considered by lenders when approving your car loan or any other form of credit, it is CIBIL score. If you are wondering what a CIBIL score is, here is a brief - whenever you apply for new credit, lenders check your creditworthiness to see how you have managed your credit before.
This can be done with the help of your credit score, a numeric expression of your financial standing. A credit score is calculated on the basis of the information provided by your previous and existing lenders. In India, there are mainly four credit bureaus - Experian, Equifax, Highmark and CIBIL TransUnion. CIBIL TransUnion has been the oldest credit bureau established in India and hence is more popular in comparison to other credit bureaus.
The CIBIL score is calculated on the following factors:
Payment History
- how you have been managing your EMIs, whether or not you make payments on time
Current Debts
- your current outstanding due; this helps in understanding your DTR(debt-to-income) which is the percentage of your monthly income going for debt payments. The higher the DTR, the lower your chances of approval.
Length of credit history
- how long any given account has been reported open. It is popularly said, “The best credit is old credit”.
Credit Mix
- what all types do you have as credit accounts. Ideally, it should be a mix of both, secured and unsecured credit.
New Credit
- Whether or not you have applied for new credit at institutions simultaneously. Such behavior can indicate a significant need for credit and is not a good sign.
CIBIL Score for Car Loans
A CIBIL score ranges from 300 to 900 where 300 is the poorest and 900 is considered the perfect credit score. In order to get easy approval on car loans, it is ideal to have a credit score of 750 or above. The general range of credit score is categorized as follows:
Range Type |
Score Range |
Excellent |
750 & Above
|
Good |
700 & 749
|
Average |
650 & 699
|
Poor |
550 & 649
|
Bad |
Below 550
|
What you should keep in mind when applying for Car Loans?
Everyone dreams of owning their own vehicle, especially a car. With the introduction of car loans, it has now become easy to convert this dream into reality. However, here are a few things you should keep in mind when you apply for a car loan:
-
If the EMIs fit in your budget
A car loan is any day a credit which needs to be repaid. Even though the option of paying it back in EMIs makes it easy and convenient, it is important to check if the EMI’s can fit in your budget. If you have other EMIs for your home loan, education loan, etc., make you sure you check if you can add this before you take the plunge.
-
Don’t go for a long-term loan if possible
The longer you have your loan, the more interest will you pay. And since a car is a depreciating asset, it is not the best idea to take a car loan for the long term. If possible, keep your term as short as possible and repay the loan as quickly as possible.
-
Improve your credit score
Before applying for a car loan, it is advisable to improve your credit score so that you have the power to negotiate with your lender. Having a good credit score will give you an edge to negotiate over interest rates, loan amount and processing fees.
-
Check for processing fees beforehand
This is one expense which is overlooked and can take a toll on you at the last moment. Although processing fee is mandatory to process your loan application, you can always be prepared of the fee you are about to incur and negotiate if possible.
-
Know more about the prepayment facilities
As mentioned above, a car is a depreciating asset. This means as old your car gets, the value of the car gets depreciated. This means if possible, you must prepay the car loan to avoid paying for an asset whose value will go down over the years. Therefore, it is important to know if your lender offers prepayment facility and if yes, whether or not they have any prepayment charges.
Having a good CIBIL score for your car loan can give you easy access to credit. Please note even if you meet all the other criteria, a poor CIBIL score can deny you your dream car. That’s how important your credit score is.
