Can Your CIBIL Score Impact Your Personal Loan Interest Rate?
Personal Loan interest rates have a big impact on the cost you pay for borrowing money in the form of a Personal Loan. Your Personal Loan payments are made up of the principal (what you borrow) and the interest. If you opt for a Personal Loan with a low interest rate, there is less interest added to your EMI payment, which makes it easier for you to pay. It also means that you end up paying less money to the lender who's loaned you money. Lenders don’t set Personal Loan interest rates arbitrarily. Rather, it is your CIBIL Score that serves as a measure of your creditworthiness, and which lenders refer to before setting your Personal Loan rate of interest.
- What the CIBIL score represents
If you are applying for a Personal Loan, a high CIBIL score is best because it demonstrates that have handled credit well in the past and also that you are likely to repay new credit on time. If you have a low CIBIL score, it indicates that you have defaulted on loan repayments in the past and that you may not make monthly payments on time if you are given a new loan. Lender set the Personal Loan interest rates based on the risk you pose as a borrower. If a lender feels you pose a higher credit risk, your Personal Loan interest rate will be higher. On the other hand, if you pose a low credit risk thanks to a high CIBIL score, you will typically qualify for a lower Personal Loan interest rate.
- What role does your CIBIL score play in the Personal Loan process?
As a credit bureau, CIBIL collects, maintains, and provides individual credit information in the form of a credit report. It gets details of all your credit-related activity on a monthly basis from various creditors, such as banks, credit card companies and non-banking financial companies. This includes information on the type of loan you have opted for, the date you opened the loan account, your loan amount or credit limit, balance outstanding and your payment history (including any late or missed payments). Your credit score is calculated based on this information with the help of a complex mathematical formula. The CIBIL score reflects your past credit behaviour and helps potential lenders gauge your credit health.
If your CIBIL score is:
- 750 or higher: You qualify for the best Personal Loan interest rates from most lenders
- Under 750: It is harder for you to get a Personal Loan
- Under 600: You will not qualify for a Personal Loan
Your credit score will tend to be high if you have a good track record of making your loan repayments in time and in full. If you have been defaulting on EMI payments or using excessive credit, this will affect your credit score negatively.
Here is an infographic showing what is a good CIBIL score:
- What is the minimum CIBIL score required for Personal Loan approval?
Your credit score ranges from 300 to 900. The higher your credit score, the better are your chances of being approved for a Personal Loan. Lenders generally require a credit score of at least 750 before deciding whether to go ahead with processing your Personal Loan application.
Address the things in your credit history that are adversely affecting your CIBIL score. Start by requesting CIBIL for a copy of your credit report. Look for errors such as loans that you have repaid but which are not reflected on your credit history. In case of discrepancies, have them rectified. Pay down balances on existing loans. Try not to apply for new credit. And remember how much your CIBIL score can affect Personal Loan interest rates.
Bajaj Finserv offers Personal Loans in India up to Rs.25 lakh. The affordable Personal Loan interest rates and flexible tenure options can help you cover unexpected costs without dipping into your savings.
- Your salary
- The lower your income, the higher your Personal Loan interest rate
- A high income allows you to pay off your debt easily and gives you the power to negotiate with lenders
- Your credit score and history
- These are a reflection of your past loan repayment behaviour
- A low score and a history with missed payments or defaults cause lenders to reject your application or charge a higher Personal Loan interest rate
- The reputation of your company
- The more renowned and stable the organization you work with, the lower the Personal Loan interest rate
- Lenders perceive employees of reputed companies to have stable jobs, which increases their capability to repay debt
- Your relationship with a lender
- As a loyal customer, interpersonal relationship with a lender may fetch you lower Personal Loan interest rates
- You have the advantage since your lender would not want to lose out on an old customer
- Nature of employment
- If you are a business owner, most lenders will give you a Personal Loan even if you are at an advanced age
- If you are a salaried employee, you may not get a Personal Loan when nearing the age of retirement
If your CIBIL score is low and you want to improve your score, here are a few tips to do so:
Read the Blog: How to Improve CIBIL Score.
Apply for a Personal Loan from Bajaj Finserv
A good CIBIL score can get you a loan of your choice. Bajaj Finserv offers Personal Loans of up to Rs.25 lakh, without any collaterals. Apart from attractive interest rates and easy tenures, you can also avail benefits such as instant loan approval, fast disbursement and online account access.