If you have been visiting banks and other financial institutions applying and negotiating for loans then you must have heard the word CIBIL score. Now the question is what is a CIBIL score? A CIBIL score is basically a credit report that summarizes your entire credit history in three digits. It is a numerical system based on the analysis of a person’s credit history and represents that individual’s creditworthiness.
Why is CIBIL score so important?
As mentioned above CIBIL score represent your creditworthiness on which any financial institution decides whether you are eligible for a loan or not. Now there are 3 slabs of CIBIL score.
- 760 or more- This is the highest slab and considered as the best score. Chances of securing a loan are very high in this slab.
- 700-760- This is the second slab and considered as a moderate score. You will still get a loan but the interest rate may be a little higher here.
- Below 700- While this score may be considered as moderate for first-time borrowers, it is not a good score for previous borrowers. For previous borrowers chances of getting a loan here is difficult.
This score essentially shows what kind of a borrower you are. If you successfully repaid your previous borrowings, then it suggests that you are a responsible and safe borrower to lend money to. And if you have failed multiple times then you are not a safe borrower and cannot be trusted blindly.
Impact of CIBIL score in Home loan
If you are looking for a home loan with low CIBIL score, it will primarily affect the interest rate. You will have to pay extra interest if it gets approved.
Well, the solution here is that you can go to the NBFCs, co-operative banks, you can ask for a loan against your asset or you can go to the peer-to-peer lending websites.
Non-Banking Financial Company (NBFC): Unlike conventional banks NBFCs are very flexible with their requirement of CIBIL score. So securing a loan for low CIBIL score individuals is not very difficult. NBFCs have sanctioned loans to individuals with CIBIL score as low as 360. But they charge higher interest than banks.
Co-Operative banks: If you want a home loan without CIBIL check then Co-Operative banks are your go-to place. These banks operate on a very small scale so their operation cost is very high and that’s why they are always looking to deploy funds. The downside here is that the interest is 3%-6% higher than conventional banks.
Loan against asset: This is a very good option for a home loan for CIBIL defaulters. You can use your assets as collateral and get a loan easily.
Peer-to-peer websites: Leading peer-to-peer websites provide home loans but they will not a huge amount. Without putting any collateral you can get a loan at 12-24 per cent interest.
These are some ways through which you can avail home loans. But in the long term, they will only increase your debt and you will end up paying a lot more.
So, improve your CIBIL score and pay less.