How Does A Co-Applicant’s CIBIL Score Impact Personal Loan Application?

Do you need money quickly to meet an emergency and have no collateral to pledge? Or do you want to go on a dream international vacation but are falling short on cash? Then, look no further than a personal loan. 

Indeed, a personal loan can be one of the quickest and easiest ways to get some ready money, quite literally within a matter of hours. And the best part is, no asset of value needs to be pledged with the lender. 

Each time someone applies for a personal loan, the bank or the non-banking finance company that is lending them the money, checks their eligibility for the same.

If the borrower meets the lender’s eligibility criteria, a personal loan is typically approved in no time. This is especially true in cases where the borrower has a good CIBIL score and an impressive credit history. 

The credit score, or the CIBIL score, is a three-digit number that independent agencies like TransUnion CIBIL, Experian and Equifax generate after analysing a borrower’s previous loans and repayments.

Typically, a CIBIL score of 750 or higher is considered ideal for getting a personal loan. A person with a score of lower than 750 but above 650 or even 600 can also get a personal loan but at a higher interest rate and after greater scrutiny. A CIBIL score of lower than 550, however, can prompt the lender to reject the loan application as such a borrower is considered highly risky.

So, what can a prospective borrower with a less than ideal CIBIL score do to avoid getting rejected by a lender while applying for a personal loan?

Get A Co-Applicant

Oftentimes, lenders suggest that borrowers with weak credit scores get co-applicants to apply along with them. Having a co-applicant can often make it easier to get a personal loan as it gives lenders the extra confidence that even if one applicant is not in a position to repay the loan, the other will. 

Typically, having a co-applicant who has a higher CIBIL score or a better credit history can help someone with a low score get a personal loan.

Having said that, the reverse can also be true. 

While the co-applicant’s credit score does not have any bearing on the credit score of the main applicant, but if the co-applicant’s CIBIL score is lower, then it can have a negative impact on the personal loan application. 

A loan that is applied with a co-applicant is called a joint loan. In such a case, where there is more than one applicant, the income of the co-applicant is added to that of the main applicant and the credit scores of the two are considered together. A co-applicant could be one’s spouse, siblings or parents or even a friend or a colleague.  

While making a joint application for a personal loan a borrower must keep in mind a few things.

• A co-applicant can improve or reduce their chances of getting the loan, depending on the credit history or CIBIL score of both applicants;
• A co-applicant is also liable to share loan repayments, so if they default, the credit history of the main applicant can be impacted;
• The reverse would be equally true. If the co-applicant has an excellent credit history, it can also enhance the overall changes of getting the loan.

Apart from the CIBIL score, lenders also look at the incomes of both applicants. So, if the income of the co-applicant is significantly lower than that of the first applicant, it can have a negative bearing on the application and vice versa.

The borrower should also ensure that the co-applicant has maintained good financial discipline and is otherwise solvent.

Conclusion

In a nutshell, having a co-applicant can have both a positive as well as a negative impact on your loan application.

Good lenders like IIFL Finance typically consider applications that have an impressive credit history and a high CIBIL score. So, if you have a low credit score or a not-so-impressive credit history, you should consider a getting a co-applicant who is better than you on both these counts and can help improve your chances of getting a personal loan.

IIFL Finance offers the most competitive interest rates to borrowers with a CIBIL score of 750 and above. The company uses a fully online loan application process and sanctions personal loans of up to Rs 5 loan within minutes.