CIBIL score Rules: Suddenly, the unexpected happens; an emergency occurs that means a financial requirement a medical emergency, home repairs, or your child’s school fees. A bank or loan application will probably lend assistance, but the first thing they will ask afterward is some sort of CIBIL score. And right then, seemingly far away from the immediate issues at hand, many questions cross your mind: What is a CIBIL score? Is it going to favor me in getting the loan? If yes, how much am I eligible to borrow?
For many, how the CIBIL score relates to loan opportunities remains rather unexplained. This article, therefore, attempts to clarify that and also highlights how much influence your CIBIL score holds when you are trying to secure a certain loan amount.
What is a CIBIL Score?
The CIBIL score is a number in three digits that indicates your creditworthiness. It ranges from 300 to 900 and is a reflection of your financial conduct, particularly how responsibly you have managed credit in the past. Here is how the score works:
- 750 and above: Excellent—low-risk borrowers.
- 700-749: Good—likely terms favorable to the applicant.
- 650-699: Fair—loan securing would be difficult.
- Below 600: Bad—difficulties arise in loan sanctioning, with unfavorable terms.
Your CIBIL score is usually the first thing lenders check whenever you apply for a loan. The greater your score, the more comfortable they are that you will repay your loan on time, while a lower score raises suspicion.
How Does Your CIBIL Score Impact Your Loan Amount?
Your CIBIL score not only determines approval of your loan but also how much can be borrowed, what the interest rate should be, and the speed of approval. Here is how it works:
- Higher Score = Higher Loan Amount: With a CIBIL score of 750 or above, banks will give you higher amounts as loans due to your dependability as a borrower who repays debts on time.
- Lower Score = Limited Loan Amount: In contrast, with a score of 600 or below, you would likely get less loan amount or be outrightly rejected. Banks see these kinds of borrowers as risky ones and will hesitate to lend them larger amounts.
- Interest Rates Depend on Your Score: Your CIBIL score is also considered while deciding the interest rate on the loan sanctioned to you. A good score means securing loans at lower interest rates, saving you some money. A poor score, on the other hand, means higher interest rates and, hence, an expensive loan.
- Faster Approval for High Scores: A person with a strong CIBIL score will have faster loan approvals. The banks feel more confident about the repayment and process the applications faster; consequently, based on the higher loan eligibility, they usually approve higher amounts.
- Extra Burden for Low Scores: Banks operating on lower scores will want more information from you or a guarantee to cover their risk further. This typically makes the loan harder to acquire.
Effect of CIBIL Scores on Loans
Consider two individuals with different CIBIL scores:
Ram:
- CIBIL Score: 780
- Monthly Income: ₹30,000
- Loan Approval: ₹3 lakh
- Interest Rate: 11%
Shyam:
- CIBIL Score: 620
- Monthly Income: ₹30,000
- Loan Approval: ₹1 lakh
- Interest Rate: 16%
Ram’s higher CIBIL score got him not just a larger loan but also a loan at a lower interest rate, while Shyam got a smaller loan at a higher rate because of a lower CIBIL score!