Are you planning to apply for a car loan to buy a new vehicle for your family? If so, then you should keep a regular check on your credit score as well.
Maintaining a good credit score is equally important, whether it is for car loans or other credit products, such as home loan, personal loan, business loan, overdraft, credit card, etc. Credit score is an important factor in determining your car loan eligibility.
Your healthy credit score helps to avail car loans at relatively lower rates from various leading financial institutions. Low credit score might not necessarily deny you a car loan but might affect loan terms. Read on to get more understanding regarding the relevance of your Credit Score for securing a car loan.
Eligibility Criteria for Car Loan
To be eligible for applying for a car loan, the applicant needs to clear some specific criteria as defined by the lender. The basic eligibility criteria to be fulfilled is the age of the applicant, good credit score, healthy credit history and minimum monthly salary to name a few. Your credit score is considered as the most dominant factor for your car loan approval or denial.
Minimum credit score required for a car loan
There is no such minimum criteria defined by the financial institutions for offering the car loan. Various lenders offer car loan to applicants at their terms and it varies from applicant to applicant.
If an applicant has a credit score of 750 and above, most lenders consider approving their application as less risky. Thus, those applicants get loans approved relatively easily and at preferential terms.
However, if your score is below 700, you may face rejection by some lenders whereas some NBFCs specifically cater to these applicants. In such cases, the loan interest rate may be higher than regular rates, tenure might not be what the applicant prefers and terms would be decided by the lender.
Relevance of Good CIBIL Score for Car Loan
Your CIBIL score is mostly considered by the lenders during the loan approval process. Your credit score plays a significant role, as it affects various factors as mentioned below:
Deciding factor in loan approval or denial
The decision of the bank whether to approve or deny your loan application largely depends upon your creditworthiness and loan repayment capability. If the lending bank is convinced with your credit score then it shall approve your loan application.
Usually, car loan denials are comparatively lesser even with low credit score, as it is a form of secured loan where the default can be recovered by the lender by auctioning the asset.
Helps to define the loan amount
Your credit score highlights your creditworthiness and repayment history. If both of these are good then you can avail car loan for a higher loan amount. However, if you maintain a low credit score then you might not be able to get the loan amount as per your requirements.
Determines the loan interest rates
If you are a credit-responsible borrower and have a good repayment history along with a healthy credit score, then there are high chances that the lender might offer you the loan at relatively lower interest rates. Banks might consider you as a low risk borrower and may approve your loan application without much hassles.
Is availing Can Loan with a Low CIBIL Score or No Credit History possible?
Credit score is one of the most important factors in determining loan approvals or denials. Your high credit score can be beneficial in availing car loans at lower interest rates with longer repayment tenures. These are the additional advantages associated with having a good credit score.
However, in the worst-case scenario, even if you have no credit history or a low credit score, it is still possible for you to avail car loan, as banks shall hold your car as a collateral or security. The lending institution shall keep the vehicle as a collateral with them until you fully repay the loan amount, including interest amount. Lastly, you can come up with bigger down payment to ease your EMIs even with low credit score. Your bigger down payment makes you appear less risky in the eyes of lenders despite of low credit score.
Key Notes:
Majority of the car loans are availed by borrowers with credit score of 750 or above but the applicants with low credit score still have options. To enhance these options, you need to improve your credit score by thoroughly and regularly, checking your credit report for errors and rectifying them, paying off all your loan or credit card dues in time, avoiding multiple loan applications and most importantly, strive harder to increase your monthly income or salary. If these measures are followed dedicatedly, it can help you improve your credit score and further become eligible to own your dream car.
