Good credit history can get you a cheaper loan

This week I would like to write about my own experience of trying to get an auto loan to purchase a car.

After much research, I had decided to buy a car worth Rs10.29 lakh. I only had Rs4 lakh for down payment and hence needed an auto loan of Rs6.29 lakh. So I applied for a loan from Bank A (name not disclosed for privacy) that was present at the dealer’s location.

Upon filling in the requisite forms and providing the paper work that was required (PAN card copy, passport copy, Form 16 for the previous two years, and six months bank statements) Bank A quoted me 11.70% as the interest rate for a five-year loan. The EMI worked out to Rs13,897.

Believing this to be too high I approached my regular bank (Bank B) to get a quote. 

Given that my salary account was with Bank B there was less paperwork required (only PAN card copy and passport copy). Bank B then informed me that they will get back to me in 24 hours because as per their internal process they had to access my credit information report (CIR) before approving my loan application.

A day later, a representative of Bank B called me and said that due to my “good” credit history (I have only two credit cards and one home loan and I have never made a late payment) the bank would offer me a lower rate of 11.30% for the same 5-year term. This would bring my EMI down by Rs126.

I was quite please with this offer and proceeded to call Bank A to decline their offer.

The bank’s representative enquired why I was declining the loan. I responded that I had got a better rate from Bank B because of my “good” credit history. The representative then requested that I give her a chance to offer me a better rate. I agreed.

Only four hours later, I received a call from the representative and was pleasantly surprised when I was informed that Bank A would offer me a rate of 10.34% on the loan. This would result in an EMI of Rs13,470. The lower EMI meant a total saving of Rs25,604 over the five years of the loan.

Needless to say, I took the loan from Bank A and walked away quite pleased that my financial discipline had enabled me to earn a discount of almost 3% on my car purchase.

Senior vice-president - Consumer Relations CIBIL (www.cibil.com) creditwise@cibil.com