What is a Good CIBIL Score for a Car Loan in India?

A good CIBIL Score for a Car Loan in India is 700 and above. Car Loan is the most common and widely availed loan in India. A vehicle loan is processed based on the repayment capacity and previous track record in the debt repayment of the applicant. While repayment capacity is analyzed through ITRs (Income Tax Returns) or salary slips, previous track record in debt repayment is analyzed through CIBIL Score/ CIBIL Report.

A higher credit score allows the bank to finance easily because an applicant with a satisfactory score is less likely to make a default in the future. Hence, having a good CIBIL Score is important if you are thinking of buying a car. In this post, we will discuss a good CIBIL score for a car loan in India, steps to improve car loan CIBIL score, and frequently asked questions.

Features of Good CIBIL Score for Car Loan in India

A good CIBIL score for a car loan in India means the score acceptable by the banks to sanction a car loan proposal. An applicant with a low (unacceptable) CIBIL Score is less likely to be approved for a loan by the banks as the risk of default in such loans is higher as compared to applications with a higher (acceptable) CIBIL Score. While CIBIL Score ranges from 300 to 900, a score above 750 is considered best and the banks finance such individuals very easily. Following are the 4 types of CIBIL Score:

  1. Credit Score Above 750: Any score value above 750 is considered to be the best CIBIL Score. In such cases, the banks rarely hesitate in financing the applicants unless there are serious issues in the repayment capacity of the applicant.
  2. CIBIL Score Ranging from 650 to 749: This range of scores is considered to be the average CIBIL Score. Banks do finance in such cases but get a little cautious while processing the loans. Also, the applicant may be charged a higher rate of interest in these cases as the risk of default is a little higher than the first category.
  3. Credit Score Below 650: This range of scores means that the applicant is more likely to make a default in the future. Also, the low credit score indicates a poor repayment history. The banks hesitate to make cash advances to this category of applicants. In many cases, it has been observed that the applicants lying in such a category are offered a higher rate of interest. The bank may also lower the quantum of loans to be financed to applicants belonging to this category. Some of the banks ask for a higher down payment than normal for the applicants having a CIBIL score below 650.
  4. CIBIL Score in Single Digits or Negative Score: Single-digit or negative CIBIL Score usually implies a lack of repayment history. It may be due to the reason that the applicant has not availed any loan in the past or there are no active loans in the name of the applicant for the last 3 years. The same is the case with applicants who have availed of credit facilities 6 months before the date of extraction of the CIBIL report.

Steps to Improve CIBIL Score for Car Loan in India

  1. Applicants need to pull out the CIBIL report so that it may be analyzed.
  2. After the extraction of the report, the report needs to be analyzed thoroughly so that the adverse features observed can be taken care of.
  3. In case of any error observed in the CIBIL report, the applicant is free to raise a dispute with the bureau (CIBIL).
  4. Credit Cards have a big impact on the CIBIL Score. Hence, the limit of credit cards should be availed up to a maximum of 35% to keep your credit history clean and score high. Also, cash withdrawal in credit cards should be avoided as the same is considered negative by the credit bureaus. The full amount of credit card due should be deposited to the lender every month.
  5. Furnishing loan guarantees can adversely affect your CIBIL score. The guarantor’s credit score is negatively affected if there is any default observed in the account of the primary borrower. Not only this, the guarantor is treated equally liable to repay the loan by the bank if the borrower fails to do so.

Frequently Asked Questions about CIBIL Score for Car Loan

Here are FAQs:

1. What is the Role of CIBIL?

The credit bureau (CIBIL) keeps a track record of every borrower in India, analyzes the repayment of loans through the data shared by the banks on monthly basis, and further reflects the track record of the borrower through CIR (Credit Information Report) which is extracted by the banks before consideration of any loan in India. CIBIL Score plays an important role in the decision of car loans in India.

2. What is the Minimum CIBIL Score to Get a Car Loan?

As a car loan is a secured loan with the vehicle hypothecation active, the CIBIL score required is at least 700. The higher the score, the better are your chances of availing of the loan. Some financial institutions may even offer credit on a score over 650.

3. Why Banks Check Credit Health of the Applicant Before Approving a Car Loan?

The banks get to know about the record in debt repayment of the applicant which enables them to decide whether the loan is to be sanctioned or not. Applicants with higher CIBIL Scores are more likely to be financed by the banks. The bank can reject any loan proposal if they are not convinced with the previous repayment history of the applicant.

4. How Your Credit Score Influences the Car Loan Interest Rate?

Interest Rate in the majority of car loan products available in the market is linked with the CIBIL Score of the applicant. The lenders offer the interest rate on a differential basis. An applicant with a higher CIBIL Score is offered a lower rate of interest because the chances of default in such a case are low. On the other hand, a higher rate of interest is offered to the applicants with a lower CIBIL Score.

5. What is the Importance of CIBIL Score in Determining a Car Loan Amount?

Since the loan applications with higher CIBIL scores are considered to be less risky, banks can finance up to 100% of the ex-showroom price of the vehicle in such cases. On the contrary, if the CIBIL Score of the applicant is low, the bank may ask the applicant for a higher margin. In many cases, the banks have tie-up arrangements with famous car brands in India and can advance up to 100% of the on-road price of the vehicle in tie-up arrangements.