In today's world, owning a car is not a mere luxury but almost a necessity. That is why everyone desires to own a car. However, cars are expensive, but with banks offering wonderful loans, you can easily fulfill your dream of buying a car for yourself and your family. Before you apply for a car loan, there is one crucial thing that you must be aware of. Whenever you apply for any kind of loan, be it a car loan, home loan, personal loan, business loan, etc, lenders will always check your CIBIL score before they approve your loan application. So, even before applying for a car loan, check your credit score first. Now, you might be wondering what a CIBIL score is, why it matters in getting a car loan, and how to check yours. We will answer all your questions one by one.

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What is a CIBIL Score and Why Does it Matter?

CIBIL score is a three-digit number that can range anywhere between 300 and 900. CIBIL score is also commonly known as credit score. It is generally calculated by the Indian credit bureau called TransUnion CIBIL. Many factors play a role in calculating an individual's CIBIL score, such as their repayment history, credit utilization ratio, credit mix, etc. It is recommended that a person maintains a CIBIL score that is higher than 700 since it is considered a good enough score by most banks and financial institutions and can fetch you a loan at better than usual terms.

Your CIBIL score is basically your entire credit history reflected in one number. By looking at your credit score, lenders can assess and judge your financial behaviour in the past - how timely you pay your dues, how many credit enquiries you have made, how much credit you have used, etc. Consequently, they can judge your creditworthiness as well. Because of this reason your CIBIL score becomes a major factor in deciding your eligibility for getting loans and even credit cards. Here is a more detailed explanation of why the CIBIL score matters for a car loan specifically:

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Why is CIBIL Score Important for Getting a Car Loan?

Whenever you approach a bank or another lender to apply for a car loan, one of the eligibility criteria you will have to pass will be a minimum credit score that you must have. There are a variety of reasons for that. Let us go through them one by one:

1. Decide Your Eligibility: The first concern of all banks and loan providers is whether you can repay the loan on time or not. Since your credit score reflects your past credit usage and financial behaviour, lenders get an idea of your repayment capacity and habits. The higher your CIBIL score is the more assured they feel of getting their money back on time. Therefore, a good CIBIL score can make it very easy for you to get your car loan application approved. On the other hand, a low credit score reflects that you have not handled credit very well in the past, and lenders sense a risk in giving you a loan.

2. Enjoy Lower Rates of Interest: When you have built and maintained a high credit score, you are not only improving your chances of getting your car loan approved, but you are also making way for being able to negotiate better loan terms. With a good CIBIL score, you can get a car loan at comparatively lower rates of interest. This is obviously extremely beneficial for you because it makes it easier and more convenient to repay the loan.

3. Get Higher Loan Amount Sanctioned: Just like a good CIBIL score enables you to negotiate for lower interest rates, it also makes it possible for you to get a higher loan amount sanctioned. It is especially beneficial when applying for a car loan because, with a higher amount at your disposal, you can upgrade to an even better model of car than you originally planned to purchase. In other words, a higher loan amount increases your spending capacity.

4. Special Offers: Other than the aforementioned benefits, a good CIBIL score might also bring you some added advantages and attractive offers such as zero down payment, comparatively lower processing fees, 100% car financing, etc.

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How Much CIBIL Score Required for Car Loan?

Now that you know why your CIBIL score is such an important factor in getting a car loan, You might be curious how much CIBIL score is required for a car loan. Here is all the information you need:

No minimum credit score number is set as a prerequisite for a car loan by all banks and financial institutions alike. Each one has a different minimum credit score requirement to approve your application for a car loan. However, most of the lenders prefer a score that falls somewhere between 750 and 900. This range of CIBIL scores is considered to be excellent and reflects responsible financial behaviour on your side. For your convenience, here is a generally accepted breakdown of CIBIL scores from poor to excellent and how each one affects your car loan application:

1. Below 300: A person's credit score ranges between 300 and 900. If someone has a score less than 300, it means that the individual has no credit history at all. This usually happens with students who are freshers who are recently employed. Below 300 is considered to be a poor credit score and will make it extremely challenging, almost impossible, for you to get a car loan.

2. 300-550: If your credit score falls between 300 and 500, then you have a very poor credit score, and your chances of getting a car loan are extremely low. Banks will find it difficult to trust you with their money since your credit history reflects poor handling of finances in the past.

3. 551-620: This is often seen as a low credit score. While getting a car loan with such a score is quite difficult, it is not altogether impossible. However, even if your car loan application gets approved, you will have to face many disadvantages, such as higher down payment requirements, hyped rates of interest, etc. You might also have to make do with a lower loan amount itself.

4. 621-700: If your CIBIL score falls between these numbers, you have a fair or average credit score. This tells lenders that even though your credit history is not excellent, it is not so poor as to deny you a loan. So, with a fair credit score, you can get a car loan, but once again, it will definitely come with a set of disadvantages.

5. 701-749: Now, this is considered a good credit score by almost all lenders, and with such a score, you can be assured of being eligible for getting your car loan application approved.

6. 750-900: Having a credit score within this range means you have maintained an excellent credit score, and you will enjoy lower interest rates, higher loan amounts and maybe even zero down payment.

So now you know that if you desire to get a car loan, it is recommended that you maintain a score that is 700 or higher in order to both increase your chances of approval and enjoy favourable loan terms.

How to Improve CIBIL Score?

If you do not have an excellent credit score but still wish to get a car loan, you must improve and increase your score. Here are some things that you can do that will help you increase your CIBIL score:

1. Make Timely Repayments: One of the factors that poorly affects your CIBIL score is not paying your EMIs on time. So ensure you make repayments on time to keep your score high enough.

2. Clear All Existing Debts: Having a lot of existing debts is obviously a bad sign while applying for a loan and pulls your credit score down. So clear all your existing debts, which will help you score higher.

3. Have a Healthy Credit Mix: Having a variety of credit reflects well on your credit report and keeps your credit score up. So, make sure you maintain a healthy credit mix to maintain an excellent credit score.

4. Keep Credit Enquiries to a Minimum: This is an important one. Do not make too many credit enquiries, which will significantly reduce your credit score. Keeping the enquiries to a minimum is a good way of maintaining a high credit score.

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Conclusion

Getting a car is no longer a far-fetched dream. Today, banks offer wonderful car loans that can make it easy for you to purchase your dream car. The only thing you need to keep in mind is your CIBIL score. Your CIBIL score is one of the biggest factors that banks consider before approving your application for a car loan. A good credit score is essential to be eligible for getting a car loan. While there is no set minimum credit score requirement that applies to all lenders alike, it is recommended that you have a score that is 700 or higher than that. This is because it is considered to be a good CIBIL score by almost all financial institutions and will help you get your loan approved easily without any hassle. It will also bring you additional benefits such as lower interest rates, higher loan amounts, lower down payment, etc.

Frequently Asked Questions (FAQs)

1. Do banks check CIBIL scores to approve a car loan?

Yes. Banks check an individual's CIBIL score before they approve an application for a car loan.

2. Why is the CIBIL score important for a car loan?

CIBIL score is important for a car loan because it decides your eligibility for approval. Other than that, a good CIBIL score can also help you enjoy benefits such as lower interest rates, higher loan amounts, longer loan tenure, etc.

3. How much CIBIL score is required for a car loan?

While no specific number applies, most loan providers prefer a CIBIL score of 700 or higher. With a score less than 700, it is difficult to get your loan application approved and even if a bank agrees to sanction the loan, the terms will be highly unfavourable, with higher rates of interest and lower loan amount.

4. Can I change my CIBIL score?

Yes, it is possible to change your CIBIL score, but it happens over time. Start making your payments on time, clear all existing debt, keep a healthy mix of credit and limit your credit utilization. These habits will help you improve your CIBIL score gradually.

5. Is 650 a good CIBIL score for a car loan?

While it is not altogether impossible for you to get a loan with a score of 650, it is challenging and will likely come with disadvantages such as very high rates of interest, lower loan amount, demand for a higher down payment, etc.

6. Can I check my CIBIL score?

Yes, you can check your CIBIL score yourself. There are multiple ways of checking your CIBIL score. You can either check it on the official website of any of the four Indian Credit Information Companies (CICs), online platforms of banks and other money lenders or fintech platforms such as Paytm, Cred, Bankbazaar, Paisabazaar, etc.