What Is The Minimum CIBIL Score Required For Personal Loan?

Every once in a while, people find themselves in a situation where they need more cash than what they can manage from their usual source of income every month. This arises due to various events in the life—unforeseen medical emergencies, an unanticipated loss of job, or social occasions like marriage given the huge expenditure involved.

While one can dip into savings, at times it is not enough. Moreover, many such savings have low liquidity and may not even be available immediately.

In such cases, a personal loan is a good option to get cash at a short notice without having to touch long-term retirement savings corpus or getting into an embarrassing situation by asking friends and family for money.

A personal loan comes with very few strings attached and the borrower does not even need to pledge any asset as a security. Since there is no collateral, these loans carry a higher risk for the lender and the basic way they assess a borrower is to evaluate how creditworthy they are.

CIBIL Score: What, Who And How

Creditworthiness is assessed via a standardised process of looking at the credit history. Credit history is captured by the credit score, or CIBIL score, named after the first Indian organisation that started the credit scoring system in the country.

It represents a three-digit number that lies between 300 and 900. Higher the score, better the chance of repayment of the loan in time and, conversely, the other way round.

The better the credit score of a borrower, the lower the interest rate and other lending terms that he or she can hope to get from a lender. It also enables a swift process to get the loan sanctioned.

The score essentially captures how the borrower has behaved in the past, with existing or old loans as well as credit cards on their name. This is more closely tracked for the previous three years. If the borrower has missed an equated monthly instalment (EMI) it brings down the credit score.

As for credit cards, the holder of the plastic money gets two sets of options each month of their usage. One is to pay the entire sum due and the other is to pay part of the outstanding dues with the condition that a portion is paid. This part-payment covers the minimum due every month and if the borrower has paid the minimum due diligently it is enough to not jeopardise the credit score.

Minimum CIBIL Score for Personal Loan

While the higher the score the better, usually all lenders seek to see if the borrower has a CIBIL score of 750 or more. This is seen as the basic filter to put the borrower among those with good creditworthiness.

But different lenders have different risk tolerance and non-banking finance companies (NBFCs) generally accept borrowers with lower scores.

There are no hard and fast rules but some lenders have 600-650 as their lower threshold, while still others could go down to 500-550 levels, albeit with riders. The more flexible score requirement is usually associated with higher interest rate that is charged by the lenders.

In simple terms, lenders are unanimous on what they consider a good CIBIL score but they differ widely when it comes to their ‘acceptable’ level of minimum score.

At the same time, borrowers’ creditworthiness is not static and they can push up their score over time. So, if they foresee a need for a personal loan after say one or two years, they can plan ahead to make sure that by that time their own score improves. This can happen via various modes including retirement of other collateral-free loans, making sure they do not miss on EMIs and paying the minimum due every month for the credit card usage.

Conclusion

The credit score, or CIBIL score, is the standard way any lender gauges the repayment capacity and probability of the borrower paying back with all dues in time. This becomes critical for lenders and borrowers alike when it comes to unsecured or collateral-free loans as in such cases the score is the primary filter to gauge the repaying capacity of the borrower.

This number is dynamic and changes with time on either direction. In fact, a borrower can devise a strategy to improve it in the future to be in the good books of lenders.

A CIBIL score of 700-750 or higher is usually seen as a good score and shows the borrower has the propensity to meet repayment covenants of past or outstanding loans. But the actual minimum score varies, with some lenders being rigid about a 750 level while others accepting a borrower with a lower score, after a mark-up in the interest charge in the loan offer.

IIFL Finance offers quick personal loan approval via a fully digital process, streamlining the experience and making it a hassle-free affair. It provides personal loans over a wide range, from as low as Rs 5,000 to as much as Rs 5 lakh, with tenors that vary from three months to three-and-a-half years.