Have a Good CIBIL Score? You Can Save Thousands on Used Car Loans - Used Car Loan Blog - Tata Capital

Have a Good CIBIL Score? You Can Save Thousands on Used Car Loans

Mar 02, 2017

If you are planning to purchase a used car, you ca n opt for used car loan, it makes sense to check you CIBIL (Credit) score first.

To put it very simply, the credit score is a broad representative of the credit history of the borrower.

So if a lender wants to check how you have repaid your older loans, he/she can check your credit score and get a fair idea. An applicant with a good score (generally above 750) is assumed to be a low-risk and credit-worthy applicant. Such applicants can be given loans at reduced rates, as the risks associated with lending to them are lower. On the other hand if you have a poor credit score (let's say 500), then you will be charged very high rates of interest or can even be denied loans.

It is for this reason that having a good credit score is absolutely necessary. If you have a high score, your borrowing rates will be lower than those with lower score. How does that help you save money? Let's understand this with the help of an example.

Suppose there are 2 borrowers ABC and XYZ.

ABC has a credit score of 780 (which means low risk borrower). The lender offers a used car loan to ABC at 15%.

XYZ has a credit score of 515 (which means low risk borrower). The lender offers a used car loan to XYZ at 17.5%.

Now if both need a loan of Rs 4 lac for a tenor of 3 years, what is the impact of this difference in rate of interest?

EMI @ 15% is Rs 13,866 (Total Interest = Rs 0.99 lac)

EMI @ 17.5% is Rs 14,361 (Total Interest = Rs 1.17 lac)

So as you can see, inspite of a small difference of few hundred in loan EMI, the total interest paid during the 3-year tenor is of several thousands. This is the reason that having a lower rate is in best interest of borrowers. And this can happen easily if your credit score is high.