The demand for an instant personal loan has changed the lending landscape over the last few years. Individuals use them for emergencies or aspirational expenses. Personal loans are an excellent option to meet specific financial obligations and are available at short notice.
Individuals with a high or ideal credit score need not go through a long-drawn approval process that may cause a delay in loan disbursal. The CIBIL score provides lenders with insights into the credit history of a loan applicant and helps them assess the loan application and whether an applicant is likely to default on the loan. The credit score required for a personal loan varies from one lending institution to another. You can find the most attractive personal loans in the industry with reputed lending institutions, where personal loan interest rates start at as low as 11.99%, and the processing fee is also minimal.
What is a CIBIL score and why it is essential when taking out a personal loan?
Credit bureaus, like TransUnion CIBIL, record an individual’s credit history. Based on this, it assigns a credit score to the individual representing their creditworthiness. A high CIBIL score indicates a good credit history for the individual. The CIBIL score ranges between 300 (lowest) and 900 (highest) in India.
A personal loan is an unsecured loan. Lending institutions do not ask for any security or collateral to provide the loan. The loan amount can go as high as Rs.25 lakhs. The loan is sanctioned as per your loan eligibility and the defined set of parameters by the lending institution.
Importance of CIBIL score for Personal Loans
An ideal CIBIL score is one of the crucial parameters for personal loan approval.
- The measure of your Creditworthiness: Lending institutions offer a high loan amount without any collateral. Therefore, they need to ensure an individual’s creditworthiness. An individual’s CIBIL score is the numeric representation of their financial behavior. This score helps lenders know how well the loan applicant has handled their past debts. A high CIBIL score helps an individual get a personal loan approval quickly and at favorable terms.
- Helps to get a lower interest rate loan: A ideal CIBIL score is always favorable for loan applicants. It is a crucial factor that makes lenders approve the loan without hassles. The lender can check the number of loans taken by the applicant in the past, how timely the loan EMIs have been repaid, etc. Considering your high credit score, the lender will likely offer a loan at a lower interest rate.
What CIBIL score is needed for a personal loan?
CIBIL score is a primary tool and deciding factor for lenders to consider your loan application for approval or rejection. Ideally, an individual with a CIBIL score of 750+ can get a personal loan at favorable terms, like a higher loan amount, lower interest rate, fast processing, flexible tenure, etc. Lending institutions consider this score as a positive marker of an individual’s creditworthiness.
However, the lender may approve your loan application at a lower credit score if you meet other personal loan requirements and eligibility parameters like a high annual income. It may affect the sanctioned loan amount and interest rate.
What are the factors that affect the CIBIL score?
- Repayment history
The credit score is assigned to individuals as per their repayment history. Therefore, it is necessary to repay your loans and credit card bills promptly. It indicates strong creditworthiness and credit history. It is advisable not to default on any loan or credit card EMIs or bills.
- Credit Inquiries
When you apply for any new form of credit, the lender needs a hard check through your credit report to assess your loan repayment capability. Multiple loan applications may lead to rejection of your loan application because it creates an impression that you might be facing trouble getting a loan. It can decrease your score.
- Credit utilisation limit
Over-leveraging your credit utilization limits must be avoided to maintain a high credit score. The thumb rule is to utilize only 30% of their credit limit.
- Credit mix
There should be an ideal credit mix of secured and unsecured credit from different sources. It helps to build trust in the lender and they can approve your loan application easily. It improves your credit score.
Thus, your ideal CIBIL score shows you as a low-risk borrower. Maintain a minimum credit score required for personal loans. You can quickly secure a low-interest personal loan if you have serviced your previous debts well and enjoy a high CIBIL score.