What Is The Ideal CIBIL Score For A Personal Loan?

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What Is The Ideal CIBIL Score For A Personal Loan?

Lending institutions consider several factors while evaluating your personal loan application. CIBIL score is one such crucial factor; other factors include your age, current monthly income, employment status, and existing financial obligations. A high credit score increases your chances of getting a loan. Most lenders require you to have a credit score of 700 & above to feel confident about your capacity to repay the loan amount on time.

What is the minimum CIBIL score required for a personal loan?

A high CIBIL score reassures the lenders about timely repayment and helps secure attractive interest rates for you. Typically, the higher your credit score, the better. The minimum score required for an instant personal loan is 700. It indicates that you can manage your credit responsibly and make timely payments. With a score of 700 or higher, you can easily get an instant loan against basic eligibility conditions and documents. Eligibility conditions often pertain to age, income, and nationality. You only need a handful of documents to verify your credibility, including your salary slips, bank statements, employment proof, and KYC documents. **

What Are the Factors That Impact Your Credit Score for a Personal Loan?

Your CIBIL score showcases your credibility, based on which lenders judge your application and perceive you as a potential borrower. It summarizes your credit history and your past behavior with loans. Your CIBIL score is calculated based on the following factors:

  • Repayment history
  • Debt-to-income ratio
  • Credit utilisation rate
  • Diversity in the credit portfolio
  • Recent credit inquiries
  • Existing debt

A high credit score above 700 shows lenders that you are financially stable and capable of handling additional credit.

How Does Your Credit Score Impact Your Personal Loan Application?

1. Lower Interest Rate

Most lending companies decide on the interest rate according to the customer’s risk profile. They offer lower interest rates to applicants with a high credit score. A high interest rate increases the overall cost of the loan. Hence, maintaining a credit score of 700 or above is important to get the lowest interest rates.

2. Faster Approval

Most lenders require a CIBIL score ranging from 700 to 900 for Personal Loan approvals. A high score indicates creditworthiness, allowing the lender to approve the loan at a faster pace.

3. Better Negotiation Power

Loan providers always prefer creditworthy applicants who can repay their loans on time. Those with high credit scores have an upper hand as they can negotiate for lower interest rates.

4. Bigger Loan Sanction

For a lender, sanctioning a higher amount means a higher risk of late payment or default. Hence, they approve smaller loan amounts for individuals with low CIBIL ratings. If you have a decent credit score of 750 and above, you can even obtain a higher loan amount.

5. Pre-Approved Loan Offers

While looking for instant funds, a pre-approved loan offer can be an excellent option. Lending companies offer these loans to select customers only. Those with a good credit score have higher chances of getting pre-approved personal loan offers from their providers.

6. Longer Tenure

Choosing a longer repayment tenure reduces the EMI amount and makes it more affordable. It is riskier for the lenders, though, and only those with a high CIBIL score have higher chances of getting approval for a longer tenure.

Additional Read: How to Settle Your Personal Loan

Key Points to Consider Before Applying for a Personal Loan

Personal loans are multipurpose loans that require minimal documentation and can be accessed instantly. Once you submit the required documents, the lender processes your loan quickly, and the disbursal happens within minutes. However, keep these key points in mind before applying:

  • Maintain a good Cibil score before applying for a personal loan.
  • Reduce your DTI ratio by paying off current loan and credit card balances.
  • Ensure that you get the lowest interest rate for your loan plan.
  • Check the lender’s eligibility and documentation requirements before applying.

5 Tips to Improve the CIBIL Score for Personal Loan

  • Pay All EMIs and Credit Card Bills on Time

Ensure paying all your EMIs and credit card bills on time and in full to boost your credit rating. Timely payments can help improve your CIBIL score, as they show your credibility as a borrower. To avoid missing any payments, activate the e-mandate or set reminders.

  • Keep the Credit Utilisation Ratio Low

Maintaining a low credit utilisation ratio for a long time indicates that you can handle additional credit responsibly. You may consider requesting an increase in the credit limit to maintain a low credit utilisation ratio and improve your credit score.

  • Have a Diverse Credit Mix

A diverse credit mix is crucial for a higher credit score. It means the right balance of secured and unsecured credit.

  • Check the Credit Report Frequently

Study your credit report frequently to identify any discrepancies and get the errors rectified to improve the CIBIL score.

  • Retain Old Accounts

Closing down old loan and credit card accounts is unfavourable for your credit score. Most lenders analyse your repayment capacity by seeing how wisely you have managed credit in the past.

Frequently Asked Questions:

  1. What is the minimum CIBIL score required for personal loan processing?

Most lending institutions expect a good cibil score to process personal loans. A score above 700-750 is considered a good score for smooth approval.

  1. Can I apply for a personal loan without having a CIBIL score?

A decent cibil score is important to get easy loan approval. However, it is crucial to remember that a credit score is not the only criterion for qualifying for a personal loan. Several other factors, such as your income, age, and current financial obligations, also matter.

  1. What is the loan duration of a personal loan?

You can choose the tenure of your preference for a personal loan. A personal loan EMI calculator is best to calculate the repayable EMI; you can adjust the loan tenure until you get an amount you can easily afford to repay each month. A longer tenure reduces the EMI amount, while a shorter term increases it. Staying in debt for longer increases the loan cost and interest outgo. The trick is to strike a balance between affordable EMIs and the shortest tenure possible.

  1. Can I get a personal loan if my CIBIL score is 650?

Some lenders may offer you a personal loan with a Cibil score of 650; however, it may not come with great repayment terms. You may consider improving it by paying off your outstanding balances, maintaining a consistent repayment history and a good credit mix, etc.

  1. What factors should I look out for while applying for a personal loan?

You must consider all factors while applying for a personal loan, including your loan requirement, repayment capacity, current monthly obligations, monthly earnings, income sources, etc.

**Disclaimer: The information provided on this webpage does not, and is not intended to, constitute any kind of advice; instead, all the information available here is for general informational purposes only. Oneconsumer Services Private Limited and the author shall not be responsible for any direct/indirect/damages/loss incurred by the reader in making any decision based on the contents and information. Please consult your advisor before making any decision.

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