Have A High CIBIL Score? Know Its Importance For A Personal Loan

Managing personal finances is not an easy task but over time with a disciplined approach one can balance out the source of income and the cash outflows due to various types of expenditures. What’s more, if done religiously one would have a regular surplus to save for the future.

This involves matching the monthly salary or other professional or business income with the regular expenses. The right strategy includes a plan to also save for the future.

This is not just to achieve long-term objectives such as money for retired life or for children’s higher education or a wedding and so on, but also to create a separate kitty for meeting emergency needs in the short term.

However, often even the money saved for such unplanned expenses is not enough to meet the requirements. While one can dip into the long-term savings to avoid a liquidity crisis, at times it is not a viable option as the savings could be locked into a long-term instrument that may not be readily available or convertible into cash.

A disciplined approach would mean one does not touch long-term savings—meant to cater to other goals—for short-term needs. But this is not necessarily a dead end for people as they have other means to cover for the expenses.

Personal Loan

One can simply opt for a personal loan in such cases. This ensures the requirements are met without breaking the long-term piggy bank and avoiding the embarrassment of asking friends and family for money.

A personal loan is a short- to medium-term borrowing from reputed lenders. This is a debt that doesn’t require any security. In other words, this is a collateral-free loan product. Typically, this is meant for people who intend to pay back the loan within one-two years, though one can opt for even longer repayment tenors.

Given that the borrower doesn’t have to furnish any security, this is a small-ticket but risky debt product for the lender and they depend on creditworthiness of the loan applicant to evaluate if the loan should be sanctioned and if so at what terms. This creditworthiness is assessed via the borrower’s credit score, or the CIBIL score.

CIBIL Score

Although now there are several agencies who compile the credit score, the CIBIL score has become synonymous with the company that first started generating the scores in India.

The score is a three-digit number ranging from 300 at the lower end to 900 at the upper end. It is derived by taking into credit and repayment behaviour of a person, especially in the last 36 months.

Even if one has not taken a loan but uses one or more credit cards, they also get a score based on their usage and repayment history with those credit cards.

Usually, most lenders see a score of 750 and above as a good number for approving the loan, with higher the score the better.

Why Does A High CIBIL Score Matter?

A high score has multiple advantages.

• Green Signal Is Almost Guaranteed:

A high score of say 800 helps the loan applicant almost clear the rope and get the loan sanctioned.

• Swift:

More importantly, since it has already given a good comfort level to the lender, the loan application is swiftly assessed for sanction and thereafter the disbursal.

• Low Rate:

A person with high score spells a good customer for a lender who sees lower risk in the borrower and would ideally like to entice the applicant to take a loan from it rather than shopping around for a better deal. As a result, those with higher score get a loan offer with a lower interest rate.

• Good Deal:

It is not just lower interest rate for a personal loan that one enjoys with a high CIBIL score but also more flexibility in repayment terms and tenor and even waiver of some associated charges. There is a silver lining for those with a lower score. This is because the CIBIL score is dynamic and one can, with some planning and behavioural change with respect to existing or new loans, improve the score to become eligible for the goodies from lenders.

For instance, people can get a higher score if they repay other loans and ensure they do not skip any instalment besides not maxing out their credit card usage limit and again paying back those card dues religiously every month.

Conclusion

Even if you have a disciplined approach to personal finance with short-term savings for a rainy day besides long-term investments for bigger needs, there are situations when you might more cash. Here a personal loan comes as an excellent option to meet short-term needs. What’s more, if you have a high CIBIL score it can be accessed swiftly at low interest costs with sweet repayment terms.

IIFL Finance offers personal loans of as much as Rs 5 lakh with quick approvals and disbursals without any heavy paperwork. These loans can then be paid back in as many as 42 months in easy instalments.