CIBIL Score for Car Loan
CIBIL or the Credit Information Bureau (India) Limited is an organisation that was set up in the year 2000 for the purpose of collecting information about a person’s loan and credit cards and maintaining a record of the same for the purpose of developing a database of borrowers. It creates this database by collating information received from banks about a person’s borrowing and payments towards loans and credit cards.
Once the information is collected, it is aggregated and processed to relate to a number that ranges from 300 to 900. The minimum CIBIL score for car loans accepted by most banks is 750.
CIBIL score and applying for a car loan
So often 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 constitute 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.
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.470 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
- The simplest thing to do to avoid damaging your credit history is to ensure all payments are made on time.
- Keep loans to a minimum because too many lines of credit can strain your income and result in rejection of subsequent loans.
- Make sure you check your CIBIL score yourself, because, if too many financial organisations check it on your behalf, it lowers the score.
- Make sure you pay credit card bills in full. Paying just the minimum amount doesn’t prevent the remaining amount from being considered as overdue.
- Don’ts
- Don’t take too many loans because it points to mismanagement of finances.
- Don’t max out credit cards as that too means that you are unable to live within your means and find managing personal finances difficult.
- Don’t default on payments. Defaulting on payments gets recorded in the credit history and can haunt you for a long time.
Getting a car loan without a CIBIL score
Taking a car loan with a good CIBIL score come with perks, like more attractive interest rates and other goodies. However, with CIBIL scores taking the centre stage with all forms of credit, loans and credit cards, it may seem impossible to even think about a car loan without a credit history. But that is not always true. Some financial institutions may still offer car loans albeit at higher interest rates.
The reason banks are willing to extend this offer to car loan applicants with a bad CIBIL rating is because car-loans are secured with the vehicle so funded serving as collateral. This reduces the risk lenders take by approving such loans.
Even if you meet all the criteria for a car loan, a poor CIBIL score could deny you your dream car. A good credit score could mean better rates. Therefore, it is of utmost importance that you take extra care to build, maintain or rectify your credit history.
