A personal loan is an unsecured loan for which you don’t need to provide collateral, but potential lenders will consider your CIBIL score when assessing your creditworthiness. Hence, a CIBIL score plays a crucial role in the personal loan application process. Let’s find out the importance of a CIBIL score on the success of your personal loan application.
What CIBIL score is needed for a personal loan?
A CIBIL score is in the range of 300 and 900. A score closer to 900 increases your chances of getting a personal loan at the best loan terms. Ideally, a CIBIL score of 750 and above is considered good.
Before approving your personal loan application, lenders make sure that you are financially and behaviourally capable of repaying the loan. They pull up your credit report to check your credit score and credit behaviour and assess your risk of default. If your CIBIL score is high, it means that you have been a good borrower, and if your score is low, your risk of default is high.
Why does your credit score matter when you’re looking to take a loan?
Your CIBIL score sums up your credit history and your credit behaviour. It is a reflection of how responsibly you have handled credit – timely repayments, credit utilisation, credit inquiries, and existing debt. A good CIBIL score shows the lender that you are financially responsible and stable enough to repay the loan in a timely manner.
That said, your CIBIL credit score is just one of the factors considered while approving a personal loan. Other factors that are taken into account include your income, employer, city of residence, existing debt, etc.
Impact of CIBIL Score on Personal Loans
Your CIBIL score affects the following aspects of your personal loan application:
- Reflects your creditworthiness: Your CIBIL score intimates the lender of your capability to repay the loan as per the repayment schedule.
- Affects loan approval: A high CIBIL score increases your chances of getting a loan approved.
- Impacts the interest rate: A good credit score helps you get the lowest interest rate possible for your credit profile.
- Affects the loan terms: A high credit score allows you to negotiate with the lender for the best loan terms.
- Influences the loan amount: A good CIBIL credit score increases your potential of getting a loan for a higher amount.
What if you don’t have a CIBIL score?
Your CIBIL score is a report card of your credit profile. Several factors such as repayment behaviour, credit history, and credit type, among others, are taken into consideration to calculate your credit score. The CIBIL score helps lenders to make an informed lending decision. But if you don’t have a credit score, other factors such as income, age, and job stability are considered when assessing your creditworthiness.
A personal loan is a convenient and affordable way to cover an emergency, fund a large expense, or even consolidate debt. To make a successful personal loan application, you need to have a good CIBIL score. With a high CIBIL score, you are considered a reliable borrower and receive a personal loan at favourable terms. Therefore, it’s important that you monitor your credit score on a regular basis and work towards maintaining a good credit score. If you want to quickly know your CIBIL score, you can check it here for free.