Importance Of Your Credit Rating

In today’s era, where obtaining loans and credit cards is becoming increasingly difficult, the importance of credit score cannot be overlooked. Since many financial institutions and other companies are also using a candidate CIBIL score as an influential benchmark for their recruitment, you have all the more reason to worry about your CIBIL score.

Your CIBIL score is a three figure rating which is based on your credit history, pending debt, payment behaviour, and other factors. The score is regulated and standardised by CIBIL, which is the most popular credit bureaus of India.

Here are a few reasons that show why your credit rating is important:

Loans and Credit Cards

One of the most prominent influences that your credit rating will have on your life would be during loan and credit card applications. Almost every financial institution today dismisses the applications of the customers who have a low CIBIL score.  Since most of them consider the CIBIL score, in comparison to other forms of credit score offered by other credit bureaus, you would want to have a score between 500 and 900, at the very least. If yours doesn’t come in that bracket then unless you improve credit score you will face several rejections.

Interest Rates

Generally, the lower is your credit rating, the higher will be interest rates that you will have to settle for, which is when a bank approves your application in the first place. As harsh as it may sound, if you think about it, it makes sense.  A bank or NFBC takes a risk when it provides a loan to someone, and if the person’s credit history lacks credibility then it is only fair that they balance it out by changing a higher interest rate than the usual. Thus, if you want to enjoy attractive rates then it is a must that you have a good credit rating.

Job Eligibility

Your credit rating can also have an impact on your job applications. More than a few banks have already started making in mandatory for the candidates to have high creditworthiness in order for them to apply for jobs. For instance, in a job advertisement some time back SBI specifically mentioned that only those candidates could apply who had never defaulted on a loan. Many other banks have also followed suit, and the pattern is also making its way to non-financial companies as well.

To ensure that you don’t have to face problems when you need a home loan, student loan, or credit card in the future it is must that you keep credit report and the score in good shape. Here are a few tips that can help you with the same:

  • Monitoring: Prevention is often the best solution for a problem, and maintaining a credit score is no different. By checking your credit score from time to time, you can be aware of potential problems before it becomes too late. If you notice that your score is dropping then you can check your report and find out the reason behind it. By taking care of the problem you can improve CIBIL score. Frequent report monitoring can also help you find discrepancies, rectifying which will also increase the score.
  • Regular Payments: Nothing will help in building a high credit score as much as making timely payments for your loans and credit cards. The habit has two benefits- 1) You score is improved. 2) Potential lenders will feel comfortable with your application, and trust you easily. Thus, getting a loan or credit card in future won’t be a problem.
  • Low Credit Utilization: While a credit card offers several benefits, it is important that you use it wisely. A lot of people tend to use credit card more often than they should be. Even though you feel you can you use as much credit that is allotted to you through the card, if you use a lot of credit then it can be detrimental to your credit score. Ideally, your credit utilization ratio should not exceed 30%.

If you want to safeguard your future, then it is important you start taking your credit rating seriously. Every activity related to your credit utilization can affect your score, which is why you should spend your credit wisely, and responsibly.

How To Get A Car Loan Faster

The first purchase that most people make when they start their career is a car. They need it to commute to office daily and they cannot wait till they save such a huge amount. This is where car loans come into picture. The whole process of visiting the dealer’s showroom, comparing various features of different models, test driving and finally zeroing on the final choice is so overwhelming and time consuming that most people pay the least attention on the different ways in which they can finance it. They take the easiest option available and often end up regretting later when they find it too expensive.

Here are some ways that will help you secure the best car loan interest rate fast. If you follow these steps you will not only be able to finance the car faster, but you will also be able to bag the best deal which will not be too taxing on your savings.

  1. Check your credit score

Your credit score is an important aspect to be taken care of when you apply for a car loan. It will not only play a key role in your eligibility of the loan but also determine the interest rate that you will pay on it. A high credit score can help you save thousands of rupees on interest payments. There are a number of factors like the amount of debts you owe, your payment history that affect your score. Knowing your own credit score in advance will helps to avoid future surprises and gives you an idea of your own bargaining power. If you have a high score you can leverage it to get better terms and rates. If your score is low, you can take measures to improve it. Being aware of your own position will help you know whether you are getting the best car loan interest rate for your credit score.

  1. Understand the cost of loan and how much you can afford

The total cost of the loan depends upon three main factors. The first and the most obvious is the car loan interest rate. Lower the interest rate lower will be the total interest amount you will pay over the loan tenure. Second is the principal amount borrowed. If you make a high down payment initially, it will reduce the amount of money borrowed and therefore the interest costs. The third factor is the loan tenure. While a longer tenure reduces your EMI burden you end up paying a significant amount of interest. It is wise to keep the tenure as short as possible. You should also factor in other expenses like insurance, taxes, maintenance, petrol cost etc. when you set your car budget and determine how much you can afford.

  1. Shop around

Enter the dealer’s shop only after you have done your homework. You should have several loan options researched before you go to buy the car. To start with get online quotes to see what offers online lenders give. You need to shop around to get the best car loan interest rate in the same manner as you spend time and effort to shop for the car to get the best deal on your new vehicle. Do not assume that the dealer will give you the best rates and terms. The more options you explore the more bargaining power you will have to settle on the lowest car loan interest rate.

  1. Pre – approval

Contact your local bank or credit union to find if you can get pre-approved for a certain sum of car loan. With a pre-approval you can lock a car loan interest rate and then bargain for a lower one when you contact other lenders. You can compare the rates with the dealer’s offer and then choose the one that offers the best deal. Pre-approval offers usually expire if you do not use them within 30 days.

If you have an excellent credit score you will not have much difficulty in getting pre-approved. In case of bad credit, you may still get an approval but at a very high rate of interest.

Once you are pre-approved you can focus your efforts on choosing the best deal for the car you want to buy. Remember, a good credit score will help you sail through this process very smoothly. Hence keep your credit score in good shape and focus on strengthening your credit history if you wish to get the best car loan interest rate and get fast approvals for car loan.


How to Refinance a Car Loan in India

Refinancing a car loan is a really smart thing to do when you notice a significant drop in car loan interest rate. There are many other good reasons too why you should refinance your car loan. For instance, you could refinance if you think you’ll get more benefits by switching to fixed interest rate interest from floating interest rate. However, before you make any decision it is important that you make yourself well-informed and understand all the aspects of refinancing a car loan.

What Does it Mean to Refinance a Loan?

When you refinance a loan you basically pay off your current debt with another loan that you will repay. This new loans comes with a different payment structure and its own set of terms and conditions.  You could also have to pay a certain fee or fine when you refinance a loan.

Factors to Consider When You Refinance a Loan

Refinancing your car loan could save you a lot of money. However, there are some factors that you must consider when you refinance.

Interest Rates

One of the most common reasons why people refinance a car loan is better interest rates. For example, say RBI recently released a new policy that makes it mandatory for the banks to cut their interest rates for auto loans. However, you see that your bank is not willing to give that benefit to existing borrowers. In such situation you could go for refinancing. You could either apply for refinancing with another bank that is offering a better interest rate, or you could switch to floating interest rate from fixed interest rate with your current bank so that you can enjoy the lower interest rates issued by RBI.

Processing Fees

When you take your loan to another bank through refinancing then you are charged a processing fee which could be anywhere between 0.5 % to 1% of the pending loan amount. Thus, the money you will save by refinancing has to be sufficiently higher than the amount you will pay in processing fees. Otherwise there is no point of the whole thing given that the only reason you are refinancing is to save money.

Floating Interest Rate Vs Fixed Interest Rate

More often than not the nature of the interest rate has a greater significance than the amount of interest rate when it comes to loan refinancing. The tenure of your loan could be as long as a decade and thus, every small thing matters. It is difficult to predict how the market will be like in future, or how will the interest rates change. You could stick to fixed interest rate and take comfort in the fact that you won’t have to pay higher than what you are paying now, although you won’t be able to take advantage too if the interest rates come down. On the other hand, you can take your chances and opt for a floating interest rate.

 Case Study

To understand how refinancing can be beneficial for you consider the example of Arun. He has a HDFC bank car loan of 10 lakhs outstanding for next 10 years. Since the rate of interest was 10.5% he is paying an EMI of Rs. 13,493. However, despite the fact that loan interest rates have dropped his bank is not letting him avail a lower interest rate. So, he decides to talk to another bank which agrees to refinance his loan at an interest rate of 9.5%.  Let’s see how much money Arun will be able to save by refinancing:

Loan Details Case 1 Case 2
Outstanding Amount 10,00,000 10,00,000
Interest Rate 10.5% 9.5%
Monthly Instalment 13,493 12,940
Total Payment(Principal+Interest) 16,19,220 15,52,771
Total Interest Paid 6,19,220 5,52,771


So, you can see that by refinancing he is able to save about Rs. 67,000 (6,19,220-5,52,771) on the interest, which only goes to show that refinancing can be a really smart thing to do when the timing is right. If you think you too can save money on interest then you can apply for refinancing either at your own bank or to some other bank where you are getting a better deal.