The oldest credit information and insight company operating in India are TransUnion CIBIL. It collects data from credit institutions, including banks and non-banking financial firms (NBFCs) throughout India. Such information is then used to prepare the Credit Information Report (CIR), i.e. CIBIL reports for individual/corporate borrowers, and measures the CIBIL score / CIBIL rating. In the case of individual borrowers, a high CIBIL score is necessary for both a car loan and any other form of loan to be accepted. The following sections address crucial issues relating to how a car loan should obtain and sustain a good CIBIL ranking.
WHAT DOES A GOOD CIBIL SCORE FOR CAR LOAN MEAN?
A credit score is a 3-digit number that forms part of the CIBIL report of a person. Your CIBIL report, also known as the Credit Information Report, is produced on the basis of past loan and credit card handling. By assigning a number between 300 and 900, your CIBIL score sums up how well you’ve previously treated credit. A high CIBIL ranking, such as 750 or higher, is closer to 900. Simply put, the higher your score, the greater your chances of securing an approved car loan, whether for a new car or a used car purchase.
However, not only can a good credit score increase your odds of being accepted for a car loan, but it can also give you more access to special deals. These deals can include 100% auto finance, i.e. zero down payment, lower processing fees than normal, special low-interest rates, etc.
Although it is undoubtedly advantageous to use a car loan easily with a good CIBIL score, a comparatively low CIBIL score, such as 650 or below, does not automatically render you ineligible for a car loan. Usually, however, a low score will lead to car loan deals that have a higher interest rate or a higher down payment requirement.
HOW DOES CIBIL SCORE AFFECT CAR LOAN?
Although your CIBIL Score is just one of the factors deciding your eligibility for a car loan, it plays a key role in making use of the loan. The main aspects in which a strong CIBIL score encourages the use of a car loan are as follows:
• Car Loan Approval: As well as the other credit score issued by other credit bureaus, the CIBIL score serves as a direct indicator of your creditworthiness. In other terms, it enables lenders to judge their suitability to acquire potential loans, such as car loans, based on their previous repayment actions. Therefore, the higher the CIBIL score, the higher the chances of getting approved for your car loan.
• Car Loan Interest Rate: Your credit score will also impact the interest rate at which the car loan can be obtained. A high CIBIL score closer to 900, such as 750 and above, represents higher financial accountability, contributing to a lower interest rate.
• Car Loan Amount: A strong repayment history will also encourage you to use a higher amount of car loan, such as one with zero down payment, i.e. 100% funding. A low CIBIL score of 600 and below, on the other hand, decreases your creditworthiness, so you might not be able to get the desired amount of credit.
TIPS TO IMPROVE YOUR ELIGIBILITY FOR A CAR LOAN
To get your car loan application accepted, you can take the following steps to increase your chances of having a high CIBIL score.
• To keep a good credit history and also a good credit score, always pay your loan EMIs and credit card fees on time.
• Maintain a balanced credit mix by maintaining a balance between the number of loans secured (such as home loans, car loans, etc.) and unsecured loans (such as personal loans, credit cards, etc.). Usually, high dependency on unsecured loans is regarded negatively by lenders.
• Periodically monitor your CIBIL report and look for mistakes. You may have paid off a loan, for instance, but the report doesn’t look the same. In case of errors, you can correct the error by triggering an online CIBIL conflict.
• Never use a significant proportion of the total credit that you have available. Ideally, the ratio of credit utilization should be below 30%.
• Avoid several loan applications at the same time, as it can portray you as greedy for credit, resulting in multiple difficult CIBIL report inquiries. In the end, this will result in a lower credit score.
• Do not allow your fixed commitments to form a large part of your monthly income, i.e., ongoing loan EMIs and credit card dues.