How High CIBIL Score Helps In Getting Low-Interest Rate Loans

Although managing personal finances is not simple, over time and with a disciplined approach, it is possible to balance out the sources of income and the cash expenses. Furthermore, if followed regularly, one would consistently have extra money to put away for the future. This entails balancing the usual expenses with the monthly pay or other professional or business income. The ideal strategy has a plan for future savings as well.

A disciplined strategy would prevent one from using long-term savings, intended to support future ambitions, for immediate necessities. However, there can always be circumstances where one may have to opt for either breaking the savings or taking a loan for immediate expenses. In these instances, one of the most important parameter for assessing the creditworthiness of the borrower is credit score.

Credit score is also known as CIBIL score in India as it has become synonymous with the business that initially began generating the scores in India, despite the fact that there are now other firms that assemble credit scores.

The score is a three-digit number with a lower and higher limit of 300 and 900, respectively. It is derived by considering a person's credit and repayment history, particularly over the previous 36 months. Even if a person does not have a loan but utilises one or more credit cards, their score is still determined by how they have used and repaid those cards in the past.

Typically, lenders will approve loans with a score of 750 or greater; the higher the score, the better it is.

High CIBIL Score and Interest 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. 

Conversely, a low score lessens the chance of getting a loan or the desired amount and also increases the possibility of lenders seeking higher interest rate, especially on non-collateralised loans such personal loans to cover for the risks.

Lenders keep offering loans at low interest rates to people with high CIBIL score as it is good for their business to have a higher mix of low-list advances. With high CIBIL score borrowers not only get a bargaining chip for low interest rate, they can also demand higher loan amount and other benefits such as low processing fees etc.

Some of the other advantages of high CIBIL score are:

• 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.

• 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 tenure and even waiver of some associated charges.

For those who scored poorly on CIBIL score, it is not the end

matter. This is due to the fact that the CIBIL score is dynamic, and one can raise it by making some preparations and changing their behaviour when taking out new or existing loans, making them eligible for incentives from lenders.

For instance, people can raise their scores if they pay off other loans, make sure they don't miss any payments in future, refrain from using their credit cards to the fullest extent possible, and again, pay their credit card balances on time each month.

Conclusion

CIBIL score and interest rate on loans are inextricably linked. As the chances of default by a person with high CIBIL score is less, lenders offer low interest rate to get the business, especially in non-mortgage advances such as personal loans. It pays to have a disciplined credit life that usually leads to higher credit or CIBIL score.

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 installments.