Nowadays, loans are the staple of personal finance rather than a backup. Of course, personal loans come in handy when one has a medical emergency or wants to consolidate debts; they can reinforce one’s home improvement work and furnish weddings. A personal loan does not need security such as property or mortgaged items and this borrowing can be easily done where necessary at any time. Nonetheless, before giving credit to anyone, a creditor appraises the creditworthiness of that person, which includes checking the CIBIL score, which is really important in their decision-making process.
Here, in this blog today we shall discuss the minimum CIBIL score needed for a personal loan, in what ways effects whether or not you will be approved by your bank and ways to raise your score so as to improve what are at present your bad odds of getting that loan paid out one day down the line.
What is a CIBIL Score?
CIBIL score lies in the range 300 to 900 number and reflects as an index of how well a person can handle debt based on their credit experience A variety of factors are taken into account when computing this figure, including loans successfully returned; credit card balances and now money owed TransUnion CIBIL, its own score will be responsible for this loan company is one of India’s older and largest credit information companies.
CIBIL Score Ranges and Their Meaning
- 300 – 549: Poor – Loans can be refused on this basis.
- 550 – 649: Fair – The possibility of loan approval is very low.
- 650 – 749: Good – A chance of approval is probably about 50/50.
- 750 – 900: Excellent – Getting your loan the way you want it is nearly assured with reduced rates and better terms.
CIBIL Score Needed for Loan Approval
| CIBIL Score Range | Chances to get a Loan | Range of interest rate | Loan Amount Eligibility | Lender |
| 750-900 | High | Low Interest Rates (10% – 14%) | Low Interest Rates (10% – 14%) | Banks and Nbfcs |
| 650-749 | Moderate | Moderate Interest Rates (14% – 20%) | Moderate Interest Rates (14% – 20%) | Banks and Nbfcs |
| 550-649 | Low | High Rate of Interest (20% – 30%) | High Rate of Interest (20% – 30%) | Mostly NBFC |
| >550 | Lowest | Very High Interest Rate (30%+) | Very High Interest Rate (30%+) | Nbfcs or Private Lenders |
Why is the CIBIL Score Important For Personal Loans?
The CIBIL score mirrors what others know about our creditworthiness. Here’s where it can make a difference as far as personal loan approvals go:
1. Loan Approvals or Rejections
Lenders use a high CIBIL score as a primary tool to decide whether applications are approved or rejected by other banks26. If your number is high, you’re seen as low risk and they’ll welcome you with open arms (ahem). A low score tells potential lenders that they could be taking on more than is worth risking rejection–or getting charged higher interest rates in return for being loaned some money at all.
2. Interest Rates
Borrowers with a CIBIL score above 750 can expect lower interest rates. This makes their borrowing more affordable. The lower one’s score, the higher interest rates that person will have to pay. But yet people may still get loans if they are willing enough – close to usury!
3. Amount and Tenure of the Loan
With a good CIBIL score, the terms for the loan you are negotiating can be made more favorable. This could mean a larger loan or a longer repayment period. But if your score is low, this bargaining power disappears!
Factors that Affect CIBIL Score
- Payment history: Borrowing money and on time in paying off debts and credit card bills is to your advantage. That being said, if you start missing payments or pay back a day late your score will suffer immediately. Paying all bills promptly not only indicates you are willing to honour contracts, but also helps to establish the integrity and trustworthiness that prospect would hope one of his future representative borrowers might have.
- Credit Utilization: Regularly using more than 30-40% of the limit on all your credit cards can bring down your score since it implies excessive dependence on borrowed funds. Keeping tabs on Your Utilization Rate shows you are able to use credit reasonably.
- Credit Mix and Duration: Keeping a favorable Combination of secured Big Ticket Loans (such as Home Loans and Car Loans) mixed with unsecured Little Ticket Loans (such as Credit Cards and Personal Loans) is another plus for your score. The longer, the better for your score direction. The track record of credit use that you establish with each creditor will help determine one’s trustworthiness to future societies.
- Loan Inquiries: submitting multiple loan or credit card applications in a short span reduces your score since each inquiry creates a hard pull on your credit report. Lenders see this as somebody who’s using up every piece of their credit before they come to them for more money and not good prospects to give new loans.
- Outstanding Debts: Overdue bills accumulate on your credit report as unpaid debts, which lowers your score because it indicates lousy fiscal management. Regularly paying off outstanding debts can enhance your creditworthiness, including any outstanding sums for credit card balances and EMIs.
Tips to Boost your CIBIL Score for Personal Loan Approval
- Pay your bills on time
- Payments should be made on time to credit cards, EMIs and loans.
- Choose payment options which are such that no payment is missed.
- Reduce Credit Utilization
- Don’t spend more than you can afford on credit.
- Keep this ratio of credit utilization below 30%.
- Avoid Multiple Loan Applications
- Maxing out your cards just for fun is out of the question.
- Don’t apply for a lot of different loan products in one go.
- Check your CIBIL Report Regularly
- This will reduce your score each time you do it.
- Check Your CIBIL Report Regularly Watch out for mistakes or discrepancies in the report.
- Clear Outstanding Debts
- Resolve All Outstanding Debts. Pay off all the old debts or overdue amounts.
- That to spend reduces the debt-income ratio and raises one’s credit score.
Personal Loan Options Based on CIBIL Score
Reputed Banks and NBFCs Offer a Wide Range of Personal Loans to the CIBIL Scores
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For CIBIL Score above 750
HDFC Bank provides personal loans up to Rs.40 lakh at 10.50 per cent interest; ICICI Bank funds them both off premises and on the street, lending amounts ranging from Rs.5 crore(75%) all the way down to 1 lactic at 10.75%. Lenders have come in to serve this market: for example Bajaj Finserv offers loans up to Rs.25 lakh at 11.00 per cent interest, a viable option for borrowers of high scores.
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For CIBIL Score between 650 – 750
Between 650 and 750, people with this score have little chance of receiving rather than borrowing money from other people who may demand a much higher level of interest because all the evidence to prove that they can pay up in time has already been pointed out. Bank of Axis grants Rs 15 Lakh as debt (maximum) and at an annual interest of 12%-15%; on the other hand, at Kotak Mahindra, Dealing with borrowers having good track records leverage (DU), it is possible to obtain financing up to 20 L Rs.12.99% is levied as interest by the bank.
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For CIBIL Score below 650
People with low CIBIL scores often find it hard to get loans from traditional banks. But there is a group of NBFCs, such as Money View, Early Salary before the claim was dropped and KreditBee, offering personal loans even to those with a poor score at a much higher interest rate–which is typically 24% – 36%.
Conclusion
Having a high CIBIL score is essential for obtaining a personal loan with favorable terms, including low-interest rates and higher loan amounts. Lenders prefer a CIBIL score of 750 or higher; it is still possible to secure a loan with a lower score through NBFCs or by applying with a co-applicant.
