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Everyone wants to be able to drive around in the car of their dreams but everyone may not be able to afford it. Luckily there exist car loans that help you achieve that dream. A car loan will help pay for the car today. The loan can be paid back over a period of time in affordable instalments. However, there are certain prerequisites that need to be fulfilled before taking a car loan.
The general eligibility criteria for availing a car loan comprises of requirements like a minimum age of 21 years, a specified minimum monthly salary, and a good credit history. Good credit history relates to a good credit CIBIL score which, in many cases can be the deciding factor in the acceptance or rejection of a car loan application.
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.
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.
In India, the used car market is increasing owing to easy availability of excellent after-sales service. As a result, a large number of used cars along with car dealers have been mushrooming. The used car market is being supported by easy availability of loans for pre-owned cars. In today’s market, there are several small and big lenders like banks and non banking finance companies that are willing to offer you a loan. However, there are a few things you need to consider at the time of applying for a used car loan. Let’s take a look at some of the important things to keep in mind while applying for a car loan:
You should always browse and look out for the best deal. Never decide on the lender as each lender will offer you a different deal. Try not to take the first loan that if offered to you and go the extra mile to compare interest rates with at a good number of lenders. In today’s digital age, you can even compare and scout for exciting deals online that is suitable to your needs. Make sure to weigh all the offered deals and then take the final decision.
The EMI aspect of the loan for used car can sometimes get tricky and confusing as it is not as simple as Principal + Interest. In addition to the EMIs, also has several other components such as the penal interest, annual maintenance and EMI bounce charges. Make sure to take into consideration all these factors while calculating the actual EMI instead of only the interest rate.
A credit score is a numerical representation of an individual’s credit worthiness. It ranges from 300-900, 900 being the highest. The credit score is computed by the credit bureaus in the country by taking into consideration your current financial status and historical financial data. Generally, a CIBIL credit score of 750 and above is considered as ideal by lenders like banks and non banking finance companies. Even if you have a lower CIBIL score, some banks will still be willing to offer you credit but you may have to pay higher interest rate. It is a good practise to check your credit score from time-to-time as it gives you an idea of your credit status. There are several simple ways to improve your credit score like paying bills on time, limiting credit usage, not closing old credit accounts and so on.
Firstly, you should understand that after paying your EMI, you should have enough amount to spend for your other monthly expenses. Hence, it is ideal to limit your monthly EMI at 30-35% of your total income. When the tenure is for a longer period, your EMI becomes automatically lower, however, you end up paying relatively higher amounts as interest over this period of time. On the other hand, a shorter tenure results into better savings, but you have to shell out higher payments every month. Therefore, you should understand your monthly requirement and decide on the EMI tenure accordingly.
You can either pay a large amount of downpayment and go for a loan with a shorter tenure and avail lower interest rates. If you have funds to pay for your used car in cash, especially if the interest you are receiving from your bank is lower than what you could end up paying as interest to the lender, the second option is to make a larger down payment and avail lower interest rates or shorter tenures on the loan.
Hope all the aforementioned points will help you take a sound decision before finalising the loan and signing the agreement. Make sure to double check the terms and conditions of the loan forms carefully. You can even take advice from financial experts regarding the loan paperwork. It is better to be cautious beforehand than dealing with the issue later.
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:
After the application process is complete, they will get in touch with you and inform you of your exact credit score.
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.
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.
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.
Q. What is the CIBIL score required to avail car loan?
CIBIL score required for car loan is again dependent upon the lending entity. Different banks may look upon different eligibility criteria. However, a good credit history and a higher income to debt liability ratio are two very important things which banks consider before granting auto loans to customers.
|CIBIL score looks good? Apply and choose between best Car Loans in India|
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ICICI Bank, one of the leading banks in the country, has come up with a 100% finance scheme for people looking to buy a car of their own. With this scheme, the bank is ready to offer up to 100% of the on-road price of a car to its customers. This facility will be available as a pre-approved loan for the bank’s Savings Account holders and enables them to get a loan of up to Rs.20 lakhs.
The bank says that the loan will be made available in as little as 4 hours for its customers. Customers can simply walk into a car showroom, select the car of their choice, check the pre-approved eligibility on their account, use their account number, and fill an application form and simply drive away with a car in a very short span of time.
This facility has come up, thanks to the new algorithm the bank has generated which helps access the applicant’s credit worthiness. It basically uses a combination of various financial parameters as well as the information it receive from credit bureaus.
The bank first checks the credit score and pre-approves a certain amount which can be availed at the time of purchase. Tenures for the loan ranges up to 7 years. General Manager and Head of Retail Secured Assets, ICICI Bank, Ravi Narayanan, has said that this facility is to add to the delight of its vast customer base during the festive season.
24 October 2018