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

A loan comprises two units, the first unit is the principal amount and the second unit is the interest amount. The payable principal amount is the same for all applicants irrespective of their CIBIL score. However, the difference in the payable interest amount is due to the different interest rates offered by the bank to different individuals based on their CIBIL scores.

If the applicant has a high CIBIL score, his creditworthiness is high and it would be safer for the bank to lend him a loan. Having a low CIBIL score shows that the creditworthiness of the individual is very low and it would be very risky for the bank to grant a loan to such individuals. In many cases, banks also deny to grant a loan to such individuals even if the loan is a secured one.

If the bank offers a higher rate of interest, you can check your CIBIL score and detailed report and find out what mistakes you have committed in the past. If there are still outstanding bills, you can get those cleared as early as possible to improve your credit score.

Also Know: What is the fastest possible way to improve my credit score?

Credit Information Bureau (India) Limited or CIBIL is India’s leading credit information company. With more than 2,400 members, the organisation is India’s biggest and most trusted organisation in the industry. The company started its operations in 2000 and was acquired in 2016 by TransUnion to become TransUnion CIBIL. CIBIL provides ratings to organisations as well as individuals. The company collects the information from various sources, analyses them, and generates a rating/score which helps lenders decide whether the applying entity should be granted a loan or not.

CIBIL collects information related to an applicant’s current and past financial history and his repaying pattern and gives a score to the person. This score varies from 300 to 900. A person having a higher credit score signifies that the person has managed his finances well enough and has a clean record of credit repayments. It also signifies that the applicant has a higher creditworthiness and there is a higher probability of him repaying the loan back in time.

As per CIBIL’s analysis, about 79% of the loans are sanctioned to people who have a CIBIL score of 750 and above. Having a higher CIBIL score not only makes it easier for the applicant to get loans easily, but he also gets the loan at a relatively lower rate of interest. Banks prefer disbursing loans to such applicants because there are very few chances of them defaulting on their loan EMI or not repaying the loan.

As applicants with higher credit scores have greater creditworthiness, they get usually lower interest rates on home loans, as well as on personal loans or car loans. Many banks offer lower interest rates to such applicants which allows them to negotiate with the lending organisation.

It is the thumb rule for banks to charge higher rates of interest for applicants having a low credit score and offer lower interest rate loans to people having higher CIBIL scores. In case you fall under a category where your loan application has been rejected due to the low CIBIL score, you should postpone your plan to take a loan at this instant as either your loan will not be sanctioned or you will have to pay the higher rate of interest on your loan.

If the bank offers a higher rate of interest, you can check your CIBIL score and detailed report and find out what mistakes you have committed in the past. If there are still outstanding bills, you can get those cleared as early as possible to improve your credit score. Once you clear all your dues, you can wait for some time and recheck your CIBIL score. This time you will get a higher CIBIL score and if it goes beyond 750, it would be very easy for you to get loans, and that too a way lower interest rates.

Also Know: What is the difference between a credit score and a CIBIL report?

It is always advisable to apply for a loan only after you check your CIBIL score. Once you check your score, you know the rate that banks would probably offer to you when you apply for the loan. Secured loans such as car loans or home loans are offered at relatively lower interest rates whereas unsecured loans such as personal loans, education loans, etc. are sanctioned at higher rates of interest. Applicants with higher CIBIL scores get both types of loans at very low interest rates whereas applicants with lower CIBIL scores are offered loans at very high rates of interest.

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