How CIBIL scores can affect your Car Loan

How many of us look up supercars and luxury cars of the year and make them our muse? Quite a lot, right? Of course, they are cool, and it would be amazing to have one of our own. But, when it comes to reality, and we want to get a car or even our first car – it somehow becomes an emotional factor for a middle-class life. That’s why we have car loans to help us out.

But what if we have a hard time trying to get a car loan? Yes, it could happen. One of the reasons it could be possible is that – your CIBIL score is not in your favour. Let’s find out how your CIBIL score affects your car loan process. 

The Importance of Maintaining a Good CIBIL for a Car Loan

When looking for a car loan, having a strong credit score (750 or more) might be very important. Because lenders will see that you have been a responsible borrower in the past, the greater your credit score – the better your opportunities of obtaining a car loan.

Your credit score is also essential because it influences many other aspects, including:

• Determines loan approval or rejection: CIBIL and other credit reports are a measure of creditworthiness, and so assist lenders in deciding whether or not to approve your loan applications based on your previous repayment behaviour.
• Determines the interest rate: A higher score also indicates greater financial responsibility. As a result, lenders are more likely to offer you a reduced interest rate, and you will be able to negotiate the interest rate. Lower scores, on the other hand, offer a danger to lenders, causing them to raise the interest rate. So, whether it is an SBI car loan rate of interest rate, Axis Bank, or any other – your CIBIL will be the factor that decides your interest rate.
• The following factors are used to calculate the loan amount: Proof of your creditworthiness and a solid payback history may enable you to obtain a greater vehicle loan amount, whereas a low CIBIL may prevent you from obtaining the necessary loan amount.

A good credit score will also give you better access to special offers such as no down payment, fewer processing fees, and other benefits. At the same time, a low credit score might lead to vehicle loan requests being declined or offers with higher interest rates or down payments.

Why Do Lenders Consider Your CIBIL to Be So Important?

Your credit score from CIBIL represents your financial responsibility to lenders and banks. To illustrate, your CIBIL credit score allows banks and financial lenders to rapidly estimate your ability to repay debts. Apart from that, there are two (2) other significant reasons why lenders consider your CIBIL credit score while processing a loan application. 

• Comprehensive debt payback history: Lenders place a high value on your credit history since they do not want to engage with customers who may become risky by failing to make loan payments. The CIBIL credit report contains critical information about your credit history, such as historical loan repayment patterns and loan defaults, that provide a lender with an accurate estimate of your likely capacity to repay loans or credit card balances. Lenders prefer applicants with strong credit histories, as evidenced by a high credit score on the CIBIL report.
• To evaluate the debt burden ratio: This ratio indicates the amount of leverage you have as a borrower. A high debt-to-income ratio puts a person in a high-risk group, and the lender may reject your loan application. Your debt should never exceed your income. Make a budget and manage your expenses so that your debts do not outweigh your earnings. 

What is a Good CIBIL Score?

Your CIBIL score suggests the following regarding your prospects of getting a car loan:

• 750 – 900: Borrowers with scores in this range have a good opportunity of qualifying for a car loan. Furthermore, the vehicle loan approval process would be simple and straightforward. Furthermore, as previously indicated, you will be able to negotiate the interest rate and loan amount.
• 600 – 749: These average credit ratings reduce your chances of securing a car loan. If your score falls within this range, your lender will analyse your loan eligibility primarily based on other factors such as monthly income, number of current loans, employment stability, and so on. However, it will take more time and will not be as streamlined and seamless as when scores exceed 750.
• 300 – 599: A CIBIL score of less than 600 reduces your chances of obtaining a car loan because it demonstrates bad debt repayment habits. Your auto loan application has a significant risk of being refused. If a lender decides to offer a car loan, it will be against a small loan amount and a high-interest rate or against collateral such as shares and assets, gold, FDs, and so on. If your auto loan has been denied, it is recommended that you work on improving your CIBIL score rather than applying for loans with other lenders, which will lower your score even further.

Do you want to get a car loan? Here’s what you should know before applying:

• To keep your CIBIL score from suffering, avoid using more than 35% of your credit card limit.
• If you have a propensity of missing out on debt payback every month, use the auto-debit function, which instructs your bank to deduct the monthly vehicle loan from your account on a specific day each month. Make sure you have the necessary balance in your account on this day so that the bank does not charge you a high-interest rate every time an auto-debit fails.
• Make it a practice to pay off your complete monthly dues by the due date rather than just the minimal outstanding amount to keep your CIBIL score from decreasing. Banks charge a high-interest rate when the residual debt is carried forward to the upcoming month.
• Stay away from being a loan guarantor. If the primary account holder fails to pay his or her bills on time, it will not only have an impact on your credit history and CIBIL score, but the bank may also ask you to pay the bill on his or her behalf.
• Pay your credit card and existing loan payments on time every month to boost your CIBIL score and your chances of getting an approval for a car loan in the future.
• Eliminate financial behaviours such as cash withdrawals from credit cards, which are viewed as credit hungriness caused by financial stress.
• Last but not least, read the loan agreement thoroughly and clear your doubts before the loan is finalised to prevent the possibility of future financial behaviour affecting your CIBIL score.
• Examine your credit report on a regular basis to see if there are any repetitions or omissions, as well as any mention of fraudulent transactions. This type of material in your CIBIL report lowers your score. If you discover such information, you must file a CIBIL dispute before applying for a car loan.

Know Your CIBIL Score

Before applying for a car loan, potential borrowers can verify their Credit Information Reports using an online tool supplied by CIBIL. It is a paid service; the report costs Rs.550 at the moment. In this scenario, the measures to take are as follows:

• On the CIBIL website, you can apply for your credit score.
• Enter basic information such as your name, identity proof details, and birth date.
• Give your contact details.
• To complete the process, make the payment.

They will contact you after the application procedure is complete to tell you of your actual credit score.

Conclusion

Your CIBIL score is important – especially when you have long-term goals to attain in the long run. So, if you plan on buying a car through lenders, remember how important your CIBIL score is.