Whether you want to purchase a brand-new or pre-owned car, it is a costly affair. This is when a Car Loan can help you out. Various banks and other non-banking financial companies offer such Loans. Some banks may even offer financing for up to 100% of the car's ex-showroom price.
However, banks examine multiple factors to understand your creditworthiness during the Auto Loan underwriting process. One such critical element is your CIBIL score. Let us find out more about it.
About CIBIL score
The Credit Information Bureau (India) Limited is the most popular credit information company licensed by the RBI. Your CIBIL score is a three-digit numerical summary of your credit history, report, and rating. This number ranges from 300 to 900. The closer your CIBIL score is to 900, the better your credit rating.
CIBIL Score and Loan approval
When you apply for an Car Loan , your bank checks your creditworthiness. One crucial factor determining it is your CIBIL score. A score of 750 and above can be advantageous and allow you to secure a faster and easier approval.
Banks usually prefer individuals with a higher CIBIL score, which indicates a person with positive repayment trends and a good credit history. The score is important because past credit behaviour indicates future credit habits.
Consequently, banks want to ensure that you are a responsible individual who will repay your Loan on time before approving the amount. Hence, before you apply for a New Car Loan or Used Vehicle Financing, it can be a good idea to check your CIBIL score.
Tips to achieve higher scores
If you want to improve your CIBIL score before applying for a Car Loan, you could consider the following steps:
- Pay dues on time
Always pay your dues on time since banks see late payments negatively.
- Check your CIBIL report
Check the details in your CIBIL report thoroughly to locate any errors or mistakes. Once you find them, try to rectify them to improve your CIBIL score.
- Use Credit Cards carefully
Try spending only 30% of the limit on your Credit Card. It is usually considered a good way to maintain a high CIBIL score.
- Monitor your CIBIL score
Keep monitoring your CIBIL report and score regularly. It could assist you in avoiding unpleasant surprises in the future, such as a Loan application being rejected.
- Ensure a healthy mix of credit
It is good to have a healthy mix of unsecured Loans, for example, Personal Loans and Credit Cards, and secured Loans, like Home and Car Loans. Having too many unsecured Loans might be seen negatively.
Conclusion
Now that you are aware of how your CIBIL score influences your Car Loan approval, it is vital to maintain a high score to help you with your Car Loan approval and assist you in securing credit for other financial goals.
