What CIBIL Score is Needed to Apply for a Personal Loan?

When it comes to applying for a personal loan, one of the most critical factors lenders consider is the applicant's CIBIL score. This score, which ranges from 300 to 900, is a measure of your creditworthiness based on your credit history and repayment behaviour. But what exactly is the required minimum CIBIL score for a personal loan?

Minimum CIBIL Score Requirement

Generally, a CIBIL score of 750 and above is considered excellent and significantly enhances your chances of securing a personal loan. Most banks and financial institutions set a minimum threshold of around 700 to 750. However, some lenders may consider applications with scores as low as 650, though this often comes with less favourable terms.

A CIBIL score below 650 is considered poor, and while it doesn't entirely disqualify you from obtaining a personal loan, it makes the process more challenging. Lenders may either reject the application outright or offer the loan at much higher interest rates and stricter terms.

Due to the higher risk for lenders, the CIBIL score becomes a crucial determinant in the approval process. A higher CIBIL score indicates a lower risk of default, thereby increasing your chances of loan approval and better loan terms.

How CIBIL Score Impacts Loan Terms

Here are some ways in which your CIBIL score may affect your loan terms:

Interest Rates

One of the most direct impacts of your CIBIL score is on the interest rate of the personal loan. Applicants with higher scores (750 and above) are likely to receive loans at lower interest rates, reflecting the reduced risk for the lender. Conversely, those with lower scores will face higher interest rates, increasing the overall cost of the loan.

Loan Amount

Lenders are more comfortable extending larger loan amounts to individuals with higher CIBIL scores. A strong score indicates reliable repayment behaviour, making the lender more willing to offer a substantial loan amount. On the other hand, a lower score might result in a smaller loan amount being sanctioned.

Loan Tenure and Repayment Terms

A good CIBIL score can also provide more flexibility in terms of loan tenure and repayment options. Borrowers with higher scores might be offered longer repayment periods and the possibility of negotiating more favourable EMI structures. Those with lower scores may have to contend with shorter tenures and less flexible repayment terms.

Factors Affecting Your CIBIL Score

Some factors that have an impact on your CIBIL score are listed below:

• Repayment History: Timely repayment of loans and credit card bills positively impacts your CIBIL score. Any defaults, late payments, or settlements will adversely affect your score.
• Credit Utilisation Ratio: This ratio represents the percentage of your available credit limit that you are using. A lower credit utilisation ratio (preferably below 30%) is favourable and indicates good credit management.
• Credit Mix: Having a healthy mix of secured (home loan, auto loan) and unsecured credit (personal loan, credit cards) can positively impact your CIBIL score. It shows your ability to handle different types of credit responsibly.
• Credit Inquiries: Frequent applications for credit can reduce your CIBIL score. Each hard inquiry (when a lender checks your credit score for loan approval) slightly lowers your score. Multiple inquiries in a short period can significantly impact your score.

Improving Your CIBIL Score

Here are some tips to help improve your CIBIL score:

• Timely Payments: Ensuring all your loan and credit card payments are made on time is crucial. Set up automatic payments or reminders to avoid missing due dates.
• Reduce Credit Utilisation: Try to keep your credit card balances low. Paying off your balances or maintaining a utilisation ratio below 30% can help improve your score.
• Avoid Multiple Credit Applications: Apply for new credit only when necessary. Too many applications in a short period can negatively impact your score.
• Correct Errors: Regularly check your credit report for any discrepancies or errors. If you find any inaccuracies, report them to the credit bureau for correction.
• Diversify Credit: If possible, maintain a mix of secured and unsecured loans. This diversification can positively impact your score over time.

Alternatives for Low CIBIL Score Applicants

If your CIBIL score is below the desired threshold, you might still have options:

• Co-applicant or Guarantor: Adding a co-applicant with a good credit score or a guarantor can improve your chances of loan approval and help secure better terms
• Secured Loans: Consider opting for a secured loan, where you can pledge an asset as collateral. This reduces the risk for the lender and can improve your chances of approval despite a low CIBIL score.
• Loans from NBFCs: NBFCs may have more lenient credit requirements compared to traditional banks. They might offer personal loans to those with lower CIBIL scores, though often at higher interest rates.
• Peer-to-Peer Lending: Peer-to-peer lending platforms connect borrowers directly with individual lenders. These platforms may have more flexible criteria compared to banks and NBFCs.

While a CIBIL score of 750 and above is ideal for applying for a personal loan, it is possible to secure a loan with a score as low as 650. However, the loan terms may not be as favourable. A high CIBIL score enhances your chances of approval. It further enables you to enjoy lower interest rates, higher loan amounts, and better repayment options.

To improve your score, focus on timely payments, reducing credit utilisation, and avoiding multiple credit inquiries. Also, correct the errors on your credit report, and diversify your credit portfolio. If you have a low score, consider alternatives like having a co-applicant or opting for secured loans, NBFCs, or peer-to-peer lending. These tips and tricks can help you get a personal loan easily.