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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.
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.
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