Know The Minimum CIBIL Score To Avail A Personal Loan

A personal loan is a swift way to meet short-term financial requirements. It comes handy every now and then when a person’s expenses are more than the money in their bank account. This could be for covering emergency medical expenses, home maintenance-related expenditure, paying school or college tuition fees for children, meeting an unanticipated expense at one’s own small business or for contribution toward a wedding in the family.

To be sure, there are other ways to shore up resources for such purposes including a gold loan or cash from credit card. But there are riders attached.

For instance, for a gold loan one must possess such ornaments in the first place and that too of a required weight and purity. One then needs to temporarily part with the jewellery by pledging it in favour of the lender.

In the case of a credit card, although the process of getting cash is quick, it carries a very high interest rate.

In contrast, a personal loan is a simple product where one need not furnish any security or collateral like a gold loan nor one needs to incur heavy interest expenses like cash from credit card.

Since the money is lent without any collateral, lenders tend to assess the eligibility of a borrower for the amount he or she seeks on the basis of their creditworthiness.

CIBIL Score

Creditworthiness is captured on the basis of past credit behaviour. In particular, it looks at aspects such as the person’s repayment track record, outstanding dues or credit utilisation, credit mix and credit queries.

The creditworthiness is represented by the three-digit CIBIL score that lies between 300 and 900. Depending on the aforementioned factors one gets a score that is then used as a primary filter by lenders to assess the past behaviour and likelihood of the borrower returning the money with all dues.

In simple terms, if one has been paying their equated monthly instalments (EMIs) on time it gets counted as a positive in the credit history. The borrower’s credit utilisation also plays a part as if the person is heavily into debt either with loans and or credit card spends, it decreases the creditworthiness.

The credit profile also gets affected by the outstanding credit mix so if one only has unsecured loans it tends to show up as a negative so a mix of secured and unsecured loans is better. Then again, if one has been asking for loans all around and there are multiple credit queries by a person it is a bad omen for the lender.

Ideal CIBIL Score For Personal Loan

There is unanimity among lenders, be it banks or non-banking finance companies (NBFCs), that if one has a CIBIL score of 750 or more, the person has high creditworthiness.

If a borrower figures in that range, there is a high probability of getting a loan sanctioned swiftly at low interest rate and with the amount desired.

But when it comes to the minimum score required for a personal loan, differences crop up. So, banks typically have a high threshold and in general follow the thumb rule of seeking 750 as a cut-off for sanctioning a personal loan.

NBFCs, on the other hand, tend to be more flexible with their risk perception and accept personal loan applications even for borrowers with a lower score.

A score in between 550 and 750 is the zone where the approval of a personal loan by an NBFC is possible though they may have different risk tolerance.

Of course, the lower the score, higher the interest rate one may have to shell out and it may take longer to get an approval. Also, the actual amount they may get to borrow may actually be less than what they require.

This makes a score of around 550 a near-bottom threshold below which it is almost impossible to get a personal loan. This score indicates that a borrower may have not just defaulted on past loans but may also have a high credit utilisation level and been asking around for loans from multiple lenders indicating desperation to borrow.

Conclusion

One can cover their short-term cash needs through a gold loan or cash from a credit card or a personal loan. But all of them have their pros and cons. A gold loan requires one to possess a gold ornament with a particular weight and purity of gold and it needs to be pledged with the lender. While cash from credit card is easy to avail, it comes with high cost. In such cases, a personal loan is an excellent form of credit.

Lenders base their decisions to give a personal loan on the CIBIL score. The higher the number in the 300-900 range, the easier it is to get a sweet deal. On the flip side, a score lower than 550 makes it almost impossible to avail a personal loan.

IIFL Finance offers swift disbursal of a personal loan of amount up to Rs 5 lakh with repayments spread over as many as 42 months at attractive interest rates. IIFL Finance follows a fully digital process to approve loans, from application to documentation and then to disbursement and repayment, to make the entire journey quick and easy.