CIBIL score is the parameter that most financial institutions use to determine the creditworthiness of the borrower. A healthy CIBIL score becomes necessary to enter into a formal lending arrangement. A most common question in the mind of the borrowers is whether the CIBIL score also plays an important role in availing of a personal loan.
Importance of CIBIL Score for Personal Loans
Like other lending arrangements, the CIBIL score also plays an important role while determining personal loan eligibility. Personal loans are the unsecured loans provided by financial institutions to the borrowers. Personal loans can be availed to meet any of the personal or business needs. Being unsecured in nature, the CIBIL score becomes an important criterion for the financial institutions to determine the repayment capabilities of the borrowers and reduce their risk of NPAs.
What is the Ideal CIBIL Score for a Personal Loan
While CIBIL score becomes an important parameter for availing a loan, a question arises as to what is the ideal CIBIL score? CIBIL score ranges between 300-900. For most lending institutions, a CIBIL score above 750 is considered ideal. This is also equally relevant for personal loans. However, CIBIL above 800 is considered great. With a good CIBIL score, the following benefits accrue to you when applying for a personal loan:
- Eligibility: Personal loan eligibility criteria include assessment of CIBIL score. Therefore, a good CIBIL score creates a good impression in the mind of the lenders and assures them of the repayment capabilities of the borrower.
- Favorable terms: With a good CIBIL score, you can negotiate the terms favorable to you. Most importantly, it helps in securing lower personal loan interest rates and reduces other borrowing costs as well. As a good CIBIL score reduces the risk of financial institutions, they agree to lend at affordable costs to the borrowers.
Factors that Affect the CIBIL Score
CIBIL score is the representation of the history of your borrowings and therefore is affected by multiple factors. From loan inquiries to repayments, it considers your financial behavior in its entirety to determine your creditworthiness and repayment capabilities. Following are the primary factors that affect your CIBIL score:
- Repayment of EMIs
- Payment of credit card dues
- Maxing out your credit card limits or utilizing most of your limits.
- Keeping credit card bills outstanding or only paying the minimum amount due
- Making multiple hard inquiries for availing of the loans.
Personal Loan EMI Calculator
If you plan to apply for a personal loan, you can determine your monthly EMI in advance before applying using the personal loan EMI calculator. You just need to enter the loan amount, the personal loan interest rates, and tenure of the loan. This gives the exact idea of the amount you need to allocate monthly towards your personal loan EMI and pre-plan your budget accordingly.
While CIBIL score is not the only criteria, it definitely is an important criterion to enter into any formal lending arrangement. You may have a hard time getting a loan from a financial institution if your CIBIL score is at a lower edge. Even if you satisfy the eligibility with a lower CIBIL score, lending terms may become unfavorable. Such unfavorable terms may include higher interest rates, higher processing fees, and other costs, etc. Being regular in repayments of your EMI is one of the best ways to maintain a healthy CIBIL score.
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