Does CIBIL score affect car loans?

Owning your dream car can be an exhilarating experience and a car loan is the most viable solution to aid your purchase. However, it is crucial to determine your loan eligibility wisely. One factor that is vital in getting a car loan is your CIBIL score. So, it becomes imperative to understand what this score means and its impact on securing a car loan. Let’s look at the meaning of the CIBIL score and its implications on your car purchase. 

What is CIBIL score and how can it impact your car loan? 
 

The Credit Information Bureau (India) Limited, commonly known as CIBIL, evaluates an individual's creditworthiness based on their credit history. This evaluation is represented in the form of a numerical digit known as the CIBIL score. It can range between 300 and 900. For seamless car loan approval, a high CIBIL score is of utmost importance. Banks rely on this to determine the risk associated with lending money to an individual. 

The optimal CIBIL score for a car loan is 750 and above. This score reflects a robust credit history, indicating responsible credit behaviour. This increases your credibility as a borrower in the eyes of the lender and makes it more likely for your auto loan application to be approved. In contrast, a low CIBIL score reflects a weaker credit record, which may make lenders view you as a potentially risky borrower.

Reasons why your car loan may get rejected –

• Low CIBIL score 

The most common reason for car loan rejection is a subpar CIBIL score. The CIBIL score required for a car loan is typically 750 and above. Banks view a low score as a potential risk i.e., having a higher likelihood of repayment defaults. 

• High debt-to-income ratio 

A disproportionate ratio of debt to income signals financial strain and may hinder loan approval. 

• Incomplete documentation 

Inaccurate or incomplete documentation can also lead to rejection. Make sure all necessary paperwork is in order before applying for a car loan. 

• Existing debt obligations 

High levels of existing debt can strain your financial capacity to repay your car loan, making lenders hesitant to approve your car loan application. 

• Unstable employment history 

Frequent job changes or extended periods of unemployment may make lenders sceptical about your repayment capacity. 

• Inadequate income

Lenders want assurance that you have the financial capacity to repay the loan. If your income falls short of their criteria, it could lead to rejection. 

• Incorrect information in the application 

Any discrepancies or inaccuracies in your loan application information can raise doubts about your credibility. 

What should you note when applying for a car loan?
 

• Assess your financial situation 

Assess your financial stability and determine a realistic budget for your car purchase. This ensures you don't overextend yourself financially. 

• Beware of your CIBIL score 

Before applying for a car loan, check your CIBIL score. This proactive step allows you to address any discrepancies and gives you an idea of your creditworthiness.

• Compare various lenders 

Different banks offer varied car loan interest rates and terms. Comparing options helps you choose a loan that aligns with your financial goals.

• Read the fine print 

Assess the loan agreement terms. Be aware of interest rates, repayment schedules, and hidden charges. 

Is CIBIL score required for a used car loan? 
 

Yes, CIBIL scores are important for both new and used car loans. Lenders use this score to assess your creditworthiness irrespective of the vehicle's age. While the required score might vary slightly, maintaining a healthy CIBIL score enhances your chances of securing a favourable loan for a used car. 

How to check your CIBIL score?  
 

You can check your CIBIL score by visiting the official CIBIL website. Here’s a simple and streamlined guide to check your CIBIL score.  

• Visit the official CIBIL website. 
• Locate the "Get Your Credit Score" section. 
• Fill out personal details: name, date of birth, address, and identification information. 
• Create an account with your email ID and set a password if you're a first-time user. 
• Verify your identity by answering credit history-related questions. 
• Make the required payment through a secure gateway if applicable. 
• Instantly view your CIBIL score and detailed credit report. 
• Review the report for accuracy and check for discrepancies. 
• Optionally, download or print your credit report for future reference.
• Periodically review your CIBIL score to remain informed about your credit score and address any discrepancies promptly.

How to improve your CIBIL score?

• Timely repayments

Pay your bills, including credit card dues and loan EMIs, on time. Timely payments have a positive impact on your CIBIL score.

• Avoid unnecessary credit inquiries

Limit the number of times your credit report is accessed by financial institutions as frequent inquiries can be perceived as a sign of financial instability. 

• Manage credit utilisation

Keep your credit card balances low and avoid maxing out on your credit limit. This showcases responsible credit management. 

• Check for errors

Regularly review your credit report for errors. Dispute any inaccuracies with the credit bureau to maintain an accurate credit profile.   

• Diversify your credit

Having a variety of credit such as instalment loans and credit cards can positively impact your score. However, you must repay your dues timely and in full.  

• Do not close old credit accounts

Closing old credit accounts can shorten your credit history, potentially lowering your score. 

Conclusion 
 

For funding a car purchase, your CIBIL score is an essential determinant of your financial standing. By sticking to the car loan CIBIL requirement of 750 and above, you become a preferable candidate for competitive interest rates and favourable loan terms. This makes your car ownership journey smoother. A low score poses challenges and may result in loan rejection or less suitable terms and conditions. Hence, if you have a low CIBIL score, make sure to improve it before applying for a car loan.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.