Minimum CIBIL Score Required for Home and Personal Loan In India

Every person must plan to meet cash requirements for both short-term exigencies and certain high-valued purchases for the long term. The monthly salary or other sources of income usually takes care of regular expenditures but may still be inadequate for emergencies or large purchases.

Due to this, a person must create a savings corpus, one for short-term requirements and one for long-term goals, such as buying a house or if one has to go for a major renovation of an existing dwelling unit. But in both the cases a person may fall short of the ideal scenario where the savings cover the requirements.

Banks and non-banking finance companies (NBFCs) have tailored solutions for both situations. While they offer personal loans for meeting smaller short-term cash requirements, they also offer specific use-based loans such as an auto loan for buying a car or a housing loan for purchasing or building a residential property.

While a personal loan is a type of unsecured loan, the latter is a collateral-backed debt as the house one is buying is mortgaged as part of the loan advance.

CIBIL Score

The individual’s credit history plays an important role in the decision of a lender when a loan application is made. This is especially so for an unsecured loan but also impacts asset-backed loans such as a housing loan.

This is done by looking at credit or CIBIL score, a three-digit number that is generated for each individual in the formal financial system. The number lies in the bracket of 300-900 with a higher score denoting a person with high creditworthiness and vice versa.

Lenders look at the CIBIL score of a borrower to get an idea of how likely is the person going to repay the sum availed in full along with any and all charges, and on time.

CIBIL Score For Home and Personal Loan

By and large all lenders keep a score of 750 as the threshold. If a borrower has a CIBIL score that is equal to or greater than this number then they have almost cleared the first hurdle. To be sure, this number does not guarantee a loan would be sanctioned but does make more probable that the lender would do so.

For instance, a home loan has many other variables. It is also dependent on the due diligence that the lender conducts on the builder or the project. As a result, even if a borrower has a high score but the builder has a poor reputation the lender may think twice before sanctioning a housing loan as the lender may get stuck with a mortgaged project due to a delayed completion record of the builder.

In the case of a personal loan, however, a high score provides reasonable comfort to the lender to approve a loan.

That said, a lower score is also often acceptable too for both types of loan.

Different lenders have different risk tolerance levels and underwriting processes. For banks, a high CIBIL score is usually mandatory but a person with a lower CIBIL score can expect to get a green signal for either a personal or home loan if they shop around.

NBFCs are usually more flexible with their loan products and a person with say a CIBIL score of around 600 can still expect to get a loan, albeit with a higher interest rate.

There is no fixed number at the lower end, though 500 is considered a hard stop. Any CIBIL score below this level marks one out as a high-risk candidate and almost all lenders avoid advancing money to them.

So, if a borrower has a low CIBIL score of under 500, they may do well to wait around and try to push their number higher before even approaching a lender. This is true not just for large purchases like a house but also for a small-ticket personal loan.

This can be done by various means, such as by reducing the outstanding credit; prepaying loans, especially, unsecured loans; and ensuring equated monthly instalments on all types of loans are paid on time in the future.

Conclusion

Taking a loan often becomes necessary to meet both short-term emergency needs as well as large purchases like buying or building a house. Even though a home loan is a type of an asset-backed or collateral-backed debt, lenders still look at the borrower’s creditworthiness. The borrower’s credit history is usually the only parameter when it comes to unsecured debts such as personal loans. Hence, in both the cases the CIBIL score becomes critical.

Usually, 750 is considered a good threshold for quick approval of a personal loan as well as the first hurdle for taking a housing loan. But one can avail both types of loans with a lower CIBIL score, too, by looking at various lenders beyond the conventional banks though they need to be ready to pay a higher interest charge.

IIFL Finance offers attractive interest rates and swift approvals for both housing and personal loans via a digital process for the new generation of borrowers who are often short of time at hand and prefer an online mechanism to apply and get approval for a loan.