Lending institutions play a crucial role in the effective channelling of funds in the economy. They also act as a mediator between those with excess funds and those in need of credit to manage their finances. The CIBIL score check of the borrowers is a mandatory step performed by all prominent lending parties before providing any type of credit, including personal loans.
Ensuring that the borrowers are financially sound to repay the instant personal loan is an important function of lending institutions. Opting for a Fullerton India online personal loan is a prudent choice in the contemporary world, given its hassle-free process and minimal documentation requirement.
What is a CIBIL Score?
The Credit Information Bureau India Limited (CIBIL) is an organisation that is primarily engaged in storing and maintaining all credit-related activities of corporations and individuals in India. CIBIL score is a three-digit numeric code that is given to individuals based on their credit and repayment history. It is a credit score that usually falls between 300 to 900, a lower score signifies a poor loan history and vice versa. A higher score increases your probability of obtaining a loan.
A score greater than 750 points is usually good, and one should try to maintain that. Anything below 750 points is classified as a poor score, and one might not get a personal loan in this scenario. Your CIBIL score is calculated based on the credit-related information shared with the CIBIL’s team by the banking or non-banking lending institutions. The information found in the ‘Accounts’ and ‘Enquiries’ column of your credit report forms the basis of your CIBIL score.
Why is it Crucial for Personal Lending?
The CIBIL score provides a robust and concise financial overview of the borrower. Since the score calculation parameters consider factors such as past credit behaviour, borrowing and repayment habits, it is recognised by all major lending institutions.
Let’s delve deeper into why it is considered so important for personal lending.
- A Measure of Creditworthiness
Your CIBIL score is a quantitative picture of your creditworthiness that is meticulously calculated after assessing multiple credit-related factors. You could have a good intention, but it won’t help much if you have failed to repay a loan. This will put a dent in your creditworthiness. If you don’t have a personal relationship with the lender, it is hard to build trust. CIBIL score bridges the gap between a borrower and the lending party by giving them a fair picture of the borrower’s repaying ability and historical performance.
- Eases the Loan Approval Process
The credit score plays a vital role in easing your loan approval process. Instant loan approval requires a higher CIBIL score, preferably above 800. If your CIBIL score is on the lower end, then the lending party might assess other relevant factors and it will require them to spend more time. This will delay your loan approval process and you might not get an instant loan. Faster loan processing and quick disbursal of funds are two prominent benefits of maintaining a higher CIBIL score.
- Competitive Rate of Interest on Loans
It is one of the most important reasons why your CIBIL score matters for personal lending. A higher CIBIL score establishes the fact that you are a good borrower with a great repayment history. This reassures the lender that they will get their money back with the interest. The level of risk is lower for high CIBIL score borrowers and so they enjoy a lower interest rate on personal loan or other loans. It gives you more flexibility to negotiate the rate of interest on your loans.
- Total Loan Amount
Your credit score doesn’t just help you with a competitive interest rate but also puts a cap on your total loan amount. Meaning, if your CIBIL score is on the higher end (above 800), you can opt for a higher loan amount if needed. Those with a poor credit score will have a lower cap on the maximum loan amount they can get. Hence, checking CIBIL score is compulsory for the borrowers. However, the total loan amount that you can get also depends on other credit factors.
- Better Terms and Products
Another significant benefit of keeping a higher CIBIL score is that you get better terms on your loan products. You won’t be asked to submit tons of documents for processing the loan. You will also be eligible for a majority of loan-related products that are not commonly offered to usual borrowers. For example, a higher amount limit on your credit cards, insurance discounts, etc.
- Longer Loan Tenures
With a strong credit score, one can also enjoy the benefits of a longer tenure for personal loans. A longer tenure acts like a safety cushion in case of monetary crisis. You can choose to pay a lower monthly instalment that you can easily manage by increasing the loan tenure.
Krishna Murthy is the senior publisher at Trickyfinance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.