when it comes to applying for a car loan, you need to keep various factors in mind, such as car loan principal amount, car loan interest rate, car loan EMI, car loan tenure, etc. you can use the CRED car loan EMI calculator to get the estimated monthly installment and overall interest amount on the loan. but, whether you are eligible to get a car or not is the first thing that you need to check. all banks and NBFCs use credit scores to evaluate the creditworthiness of individuals who apply for a loan or credit card. the higher your credit score is, the better your chances of getting a loan or credit card. hence, you should first check your credit score before applying for a car loan. CIBIL score is the most popular credit score rating used in India.
the CIBIL score is a three-digit number that ranges from 300 to 900 where 300 is the lowest CIBIL score and 900 is the highest CIBIL score. most banks consider a CIBIL score of 750 and above creditworthy. a CIBIL score of 650 or less is considered too low to be given a loan.
your CIBIL score is calculated based on the information collected by the credit rating agency from banks about your borrowing and loan EMI payments, and credit card bill payments. based on this information, the credit rating agency gives you a credit rating that can range between 300 to 900. if you want to apply for a car loan, make sure your CIBIL score is above 750.
to improve your CIBIL score, it's very important to know how the CIBIL score is calculated. the CIBIL score is given on the basis of the history of your loans, credit cards, EMI payments, and credit card payments. if you have paid your EMIs and credit card bills on time and have the right mix of secured and unsecured loans, you are likely to have a high CIBIL score, whereas, if you have settles or defaulted on your loan EMIs and credit card payments, your CIBIL score will be low. the chances of your loan or credit card approval depend highly on your CIBIL score.
sometimes the car loan applications of individuals are rejected by the banks even after meeting most of the eligibility criteria. one of the common reasons for car loan application rejection is a low credit score or CIBIL score. generally, the banks consider a CIBIL score of 750 and above as the minimum requirement for approving loans and credit cards. so, if an applicant matches all other eligibility criteria but his/her CIBIL score is below 750, his/her car loan application might get rejected by the banks.
let's first understand some of the most common reasons for a low CIBIL score:
when a lender gives you money, he/she expects the money to be returned on time. so, if you have delayed payments towards your credit cards or loans time after time, it reflects poor financial management and will lower your CIBIL score which can become a reason for the rejection of your car loan.
overdue credit cards
you should always pay your credit card outstanding bill in full instead of paying the minimum amount due. by paying a minimum amount due on your credit card, you can avoid late fees, however, consistently rolling over dues like this will lower your CIBIL score.
defaulting on payments
when you fail to make payments towards your credit card bills, loans EMIs or overdrafts, etc. it reflects improper financial management which, again, becomes a reason for a low CIBIL score.
if your car loan has been rejected and you apply for a fresh car loan immediately after the said rejection, the second loan application also stands a high chance of rejection. repeating this cycle will lead to a lower CIBIL score.
too many loan applications
if you apply for a car loan to multiple lenders at the same time, they all end up requesting your CIBIL details at the same time. this works negatively for your credit report and can lower your CIBIL score.
CIBIL score can be increased by improving your financial behavior. here are some of the common steps that you can take to improve your CIBIL score to get a car loan easily:
check your CIBIL score
before you apply for a car loan or any other loan or credit card, you should always check your CIBIL score first. you can check your CIBIL score on CRED. when you download your CIBIL score, you also get your CIBIL report which is a compilation of your credit history.
check credit history
you should read your CIBIL credit report carefully and find out the errors if any. sometimes, the CIBIL report will show wrong information, such as, you may have paid off a loan, but the report shows it as open, or the report may mention a loan that you never applied for.
report the error to rectify it
if you find any error in your credit report, you should send an email to the CIBIL requesting them to rectify the error. you must mention the information which is wrong and provide supporting documents to prove your claims.
practice better money management
if you don't find any error in your credit report, and still your CIBIL score is low, then you need to improve your creditworthiness by taking the following steps:
you can improve your CIBIL score to get a car loan by consistently paying your dues on time.