The personal loan is amongst the most popular borrowing choices for people seeking quick access to the funds for a range of personal reasons, including wedding, education, medical treatment, purchasing expensive things, etc. The reason is easy availability and no collateral needed for availing loan for personal uses
Along with personal loan documents, the collateral-free or unsecured nature of the loan makes it highly crucial for lending institutions to ensure the applicant’s creditworthiness.
What Is Credit Score?
A credit score given is a three-digit number ranging from 300 to 900, which is ascertained based on your credit history. A higher CIBIL score or the score closer to 900 (above 750) is usually considered to be an impressive score, whereas the score around 300 is a poor credit score.
A high CIBIL score indicates increased creditworthiness through good repayment and past credit behavior track record. So, it indicates a decreased default risk of the lending institution. Although credit score does not determine a person’s ability to obtain a personal loan, it is amongst the factors that lending institutions consider when they evaluate loan applications.
A person with a poor credit score or no credit history is considered as dubious or a high-risk borrower by lenders and finds it difficult to secure a personal loan for a low CIBIL score. Your credit score is affected directly by –
- Credit mix or the ratio of secured and unsecured loans.
- Credit utilization ratio or the ratio between your assigned credit limit and current outstanding debt.
- Age of credit history
- Repayment history
Benefits Of Having An Ideal Credit Score
- Better Living Standard
If a person has maintained an attractive CIBIL, they can take up loans for buying a new vehicle or house or starting a new business. With a new home in a posh area and a good car, the applicant’s living standard will automatically rise. The person can afford luxury items because of easy and cheap personal loans.
- Signifies Your Creditworthiness
While seeking a personal loan, lenders consider your CIBIL score as much as your personal loan documents. The credit score acts as a stamp of your creditworthiness. The lender can know whether an applicant would repay their loan on time or not just by considering their CIBIL score. People who have low CIBIL scores are usually offered loans with a lot of terms and conditions.
- Interest Rate
Lenders happily offer personal loans to applicants with impressive CIBIL scores for a competitive rate of interest. So, if your credit score is high, you can secure the loan easily at any lending institution, which means you can negotiate for a lower interest rate. Some lending institutions also waive off pre-payment and processing charges. But in the case of a low CIBIL, the lender determines the rate of interest, which is considerably high.
- Fast Loan Approval
If you are thinking of starting up, you will need a fair amount of cash. You will have to acquire a small loan for the same, and you cannot obtain an affordable personal loan for low CIBIL score. Although having a good CIBIL score is not enough to guarantee loan approval, it increases the chances of being successful at acquiring personal loans. Additionally, applicants with a high credit score will acquire larger loan amounts at lower interest rates. Their loans also get approved within significantly less time.
The benefits mentioned above of possessing a winning CIBIL score signify why maintaining a score above 750 is essential. CIBIL score is a direct indicator of your creditworthiness and affects how risky lenders consider you. If your score is low, they would be hesitant in offering you a large loan, and even if they do, the interest rate would be high.