Loans have become quite easy and necessary in today’s world. The availability of loans, attractive and lucrative interest rates and other benefits are much fascinating. Also, you can live your dream today instead of a few years down the line that that’s the most important thing what makes it beautiful. However, the best things in the world are no free! So you definitely have to take care over a few things. A loan is not available to anyone and everyone. To be eligible to get a loan, there are a few criteria that are to be fulfilled. Let’s look at them!
CIBIL score. What is it and how it is determined? A credit score or a CIBIL score is a three-digit number ranging from 300 – 900 where 900 is the highest score and 300 is the lowest. A score above 750 is good CIBIL score, between 600 – 750 is average and lower than 600 is a Low CIBIL score. This core is made up of five parameters. Payment history i.e. how responsibly the borrower has made payment in past, an amount owed i.e. how many accounts of the credit are still open and how many are closed after payment, the total amount that is been approved till date! , credit mix i.e. secured and unsecured type of credit with a fixed or recurring type of credit, new credits i.e. how frequently the borrower is opening the new accounts and lastly the length of account i.e. how long has it been for the accounts. These five parameters are given a different percentage and the final score is calculated by an algorithm that is followed by the credit bureau.
Suppose you want to a car loan from a bank. Your credit score is 683. Now, this is an average score. Not food, not bad. In this case, there are different scenarios if your loan will be approved or not. Suppose bank A rejects the loan but bank B may consider and approve the loan. But hey, not at the same cost. Maybe at a higher interest rate than usual considering it is a risk. Now, also according to different types of loan and depending on the different bank the score criteria changes. Home Loan, Personal Loan, Business loan, Education Loan and Motor loan or auto loan are the most common types of loans that are usually borrowed. Mostly a score that is 600 – 650 or above in any type of the loan application will at least get an approval from at least one bank among five applied. But if the score is below 600, it’s damn difficult to get the approval for any type of loans.
There are a few private lenders and NBFCs who help in getting the loan of the very basic amount with very high-interest rates to these types of the borrower so that they may clear the older defaults in order to increase the low CIBIL score. However, you should be aware of it’s not trap that you are falling into. Always calculate things in details and work out if in a long run it is going to make sense or not!
It is not very difficult to manage the score. Usual payments, no missed or the delayed payments and responsibility across credits taken will keep the score intact. But missed payment, late payments will drag the score down. And then it becomes difficult to get a loan with a low score. There are a lot of complications and very high-interest rates that are been charged for lower score people who apply for a loan as that becomes a risk profile for the lenders.