When applying for a car loan, keep a check on your CIBIL score to avoid any unpleasant surprise. Before a loan can be granted, banks and other financial institutions will check the applicant’s credit history, income and loan repayment patterns. The higher the CIBIL score, greater the chances of getting a car loan of one’s preference. The minimum CIBIL score required for a car loan depends upon the financial entity. A score of 750 and above is generally regarded as favorable for a car loan. However, if one’s credit score is low, do not fret! A bad credit score does not automatically make car loans out of the customers reach.
Factors that negatively affect credit scores
It is important to identify the reasons for poor credit scores. An applicant can fall into the defaulter category for reasons including loss of job and sudden financial emergency, among other things. A financial institution might take the above reasons into consideration when deciding to approve or reject the car loan application, provided that the person has a good repayment history and has only defaulted in the recent time.
If a car loan application has been rejected, do not make the mistake of applying for another one immediately after the first one. Chances are the second loan application will also be rejected, thereby pushing one’s credit score down. Never send out loan applications to multiple financial institutions at the same time. This will result in all the institutions requesting the consumer’s CIBIL score together, thus negatively affecting the credit score. Loans should be repaid on a timely basis as any form of default on the part of the borrower reflects poor financial management which affects the score.
In recent times, financial houses are keeping a lookout for any increase in the borrower’s credit cards or loans as they reflect an increase in the person’s debt burden, which in turn lowers the credit score.
How to get a car loan despite bad credit score
The average score that is expected of a person is 750 in India. Any score below the average mark is considered a bad credit score. The factors taken into consideration when calculating the score include – borrowing details, outstanding loans, repayment history etc.
In cases of bad credit scores, some financial institutions are willing to offer car loans on stringent terms and conditions, such as high car loan interest rates. The reason why car loan applications with bad credit scores may not be rejected by lenders is because such loans are secured with the vehicle, thus serving as collateral. This brings down the risk that banks and financial institutions take by approving car loans. One can also approach small co-operative banks that are not members of CIBIL yet. CIBIL defaulters seeking car loans can opt to utilize fixed deposits. Here the interest rates are low, and the tenure, among other factors, decides the loan amount.
There have been several cases of individuals taking out loans from unauthorized lenders at hefty car loan interest rates on account of their bad credit score. This only pushes them further into debt and tarnishes the person’s credit report and scores. Hence it is advisable to avoid such measures and instead work on raising credit scores to a favorable level before sending out car loan applications.
It is of the utmost importance that one puts in the extra effort to build and maintain credit history. Keep a check on the Credit Information Report (CIR) for errors, if any. There are possibilities that a person’s loan information may not be updated.
How to boost your credit score
Now coming to the most important segment – How to boost your credit score? There are a number of corrective measures a person can take to improve his/her credit score. Always ensure that payments are made on time, and use credit conservatively. Holding a single credit card is advisable as compared to numerous credit cards, and only apply for a new credit card when deemed necessary. It is also essential to monitor one’s co-signed, guaranteed and joint accounts on a monthly basis. Any form of neglect by a joint holder can impact the person’s ability to access credit when needed.
With the financial institutions in the economy now opting for risk-based lending, it is important that every individual implement effective financial planning and management. Keep in mind that financial discipline is all it takes to bring about the positive change needed for a person’s credit score.