Importance of CIBIL score in Personal Lending

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A personal loan is a variant of unsecured loan that helps you to access finance when you need to fulfill your short term and long term goals. Availing a personal loan provides you with the opportunity to plan a vacation, renovate your home, arrange a lavish family function, or meet an emergency in your family. Moreover, the personal loan being an unsecured loan does not require any collateral to be pledged against the loan.

The lender of the personal loan also offers you the flexibility to use the funds as per your needs. However, there are specific parameters such as credit score, CIBIL score, etc. that you need to qualify to avail a personal loan.

Also, from your end, a cibil score check can be considered to be a viable option. The lender readily approves the personal loan when he is convinced enough of your creditworthiness. 

Importance of CIBIL score in personal lending

What is the range of documents that are required for Personal loan?

Proper verification is done before sanctioning the loan. The entire process can also involve submitting certain documents that are as follows :

  • KYC Documents that can include Aadhar card, Voter Id and the driving License
  • Employee ID Card
  • Lat 2 months salary slips
  • Last three months salary slip

While we are applying for a personal loan. We need to adhere to specific eligibility criteria that are as follows :

The loan disbursal can be undertaken under 24 hours of approval. The various set of factors are as follows :

  1. The age must be between 23 and 55 yrs
  2. A working professional with a regular salary 
  3. You must be a resident of India

What is the CIBIL score? 

The CIBIL score is a number comprised of three digits that expresses your credit history to the banker or lender. This score forms an essential factor that determines whether you will be approved of the loan or not.

The calculations regarding your CIBIL score is made based on the credit report from where one can access the credit history of the borrower. The CIBIL score generally varies between 300 and 900.

Having a good credit history implies that you have a high CIBIL score and thereby increase your chances for easy loan approval. 

Why is the CIBIL Score Important in Personal Lending? 

The CIBIL score plays a crucial role when it comes to personal lending. Having a good CIBIL score also has several added advantages associated with it. Mentioned below are some reasons that justify the importance of CIBIL score in personal loans.

Creditworthiness

The CIBIL score is the primary parameter that your prospective lender checks when you apply for a personal loan. It helps them to analyze whether you will be able to repay the credit on time or become a defaulter. When a person with a high CIBIL score approaches the banker, it becomes easier for him to avail of the loan than a person with a low CIBIL score.

Loan Approval

The time is taken for the approval of the loan also depends on your credit score. A high credit score ensures speedy support of the loan application of the borrower. Having a high CIBIL score increases confidence in the bankers, which makes them take minimum time in processing the loan approval. As the processing time reduces, the funds are transferred to the borrower’s accounts in no time, and he can quickly address his needs. 

Interest Rate

When the borrower avails a personal loan with a high CIBIL score, there are high chances that he can ensure comparatively low-interest rates on his investment. With a high CIBIL rating, he also has the power to negotiate with the lender regarding the interest charges. The lenders often waive off the processing and pre-payment charges if the borrower has high CIBIL scores. On the other hand, borrowers with low CIBIL scores may suffer higher interest charges on a personal loan. 

Loan Amount

The amount of your loan also depends on the CIBIL score of the loan applicant. The applicant with a high CIBIL score can easily entail a more elevated amount while the borrower with a low CIBIL score may not be allowed to avail of a loan amount he decides. 

Having a high CIBIL score also ensures that the borrower can avail a personal loan with minimal documentation. It is a general fact that a person with a CIBIL score closer to 900 can easily avail of a particular loan and have a hassle-free borrowing experience. 

Importance of Credit score while securing a Personal Loan 

A credit score is directly inclined with securing a Personal Loan. 

The minimum age for securing a personal loan is 21 years, and the minimum credit score should be 750. A credit score reached upto 700, can be considered provided that the person adheres to other factors of creditworthiness. 

Some of the critical areas which you must keep in mind while taking a loan and maintaining your cibil score

  • Make the right choice of lender: Don’t jump so quickly. Research well, and shortlist the specified lender. Also, don’t raise multiple queries at the same time as it can have an unfortunate effect on your credit score. 
  • Get a free cibil report: Cibil Check is so important. You must claim your Cibil report for free. RBI has given guidelines and also provided the provision to avail of a free credit report. It is available every month, for six months and even for one year. 

Can I get a personal loan with a low cibil score

Struggling with low cibil score. Here can be a fix to use. A good credit score is always a priority. However, you need to match specific factors for the banks and NBFCs to approve your guidelines. Some of these factors include;

  1. Decent Income
  2. Clean financial record
  3. The current job which pertains to a regular flow of salary

The loan will be sanctioned, but you will have to bear with a high level of interest rate due to a low credit score. 

Some of the questions which may pop up in your head? 

Q1: What if a particular person does not have a credit history?

Well, such a case can happen; however, having or showing an active credit history plays a vital role. Having no credit history means that a person has not taken any credit from any financial institution. This can postpone the process of making a loan. SO, showing a prior history is very crucial. 

What if I don’t pay my Loan?

While you are taking a loan, you must have a robust financial base. In case you don’t make full payment for Personal Loan than there can adverse affects. Let us discuss them :

Firstly, due to the delay in debt, it can hurt the credit score. The failed action will be reported to the credit bureau. Don’t neglect this, because it takes a lot of time to recover the credit score.

Secondly, In some cases, while wear taking a loan, a cosigner may be attached. The cosigner or signed partner in the loan agreement can get credits from the agents to recover the loan amount. 

Thirdly, you can also get caught in some legal delimit. 

The lenders can adopt legal routes to recover the total sum from the borrower. 

Here some sneaky ways that can help make a good credit score :

1)Autopay: Auto-deduction can be very useful. This can be useful. Y, at the end of the month automatically, your dues will be clear.

2)Mobile Apps: We all are versed in technology. Start setting up regular alarms or mark the date in your calendar as a reminder

3) Divide: Start making weekly payments instead of monthly. Also, don’t make all the payments with your credit card. Alternatively, you can use different mediums for payment. 

5) Repay: Repay your loans on time, bright all your due. 

Personal Loans can act as a great form of investment. It can be considered the right way by which we can improve our credit score, reduce the level of our credit card debt. However, do analyze all the pros and cons of the personal loan. Be honest and sincere to yourself and be sure about your financial behavior. 

In case you have a tight budget, taking a personal loan is such a situation can give a toll on you. The best solution will be to stock some money beforehand. This will also save you from paying a high-interest rate. 

As a result, we must be careful. Maintain the right level of credit score. 

Repay your loans on time, Clear all your due. I wish you a happy investment journey!

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