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Know How Much CIBIL Score Is Required For Personal Loan in India

Updated on: 08 Apr 2022 // 36 min read // Personal Loans
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Know How Much CIBIL Score Is Required For Personal Loan in India

Several factors come into play when you apply for a personal loan. Lenders have pre-set eligibility conditions and closely assess the applicant’s profile for aspects like age, current income, employment status, nature of the job, etc. In addition to these, one of the crucial parameters to gauge the applicant’s creditworthiness and repayment capacity is the credit score. 

The relevance of credit score for personal loan applications is extremely high. This is because a personal loan is an unsecured loan and therefore does not have collateral backing. Therefore, the lender grossly relies on the CIBIL score for personal loan to gauge creditworthiness, thereby reducing their credit risk.

But what is the minimum CIBIL score for a personal loan? Let’s understand the intricacies of credit score and know how much CIBIL score is required for a personal loan in India:

What is the Minimum Credit Score for a Personal Loan?

How much CIBIL score is required for a personal loan in India? Before we answer this question, let us understand what is credit score and how it is measured. The credit score is an indicator of the creditworthiness of the individual. It is measured on a scale of 300-900. The values of the credit score are interpreted as follows:

  • A credit score between 800 and 900 is rated as Excellent
  • A credit score between 750 and 800 is rated as Good
  • A credit score between 625 - 750 is rated as Average
  • A credit score below 625 is rated as Bad

Thus, a minimum credit score of 750 is considered ideal for availing of a personal loan in India. This helps the borrower get the loan on the most favorable terms and conditions. However, it is pertinent to mention here that applicants who have a credit score less than 750 can also apply for a personal loan, but the lender will charge a much higher rate of interest on personal loans approved to people who have an average credit score.

Eligibility Criteria for Availing Personal Loan in India

General RequirementsConditions and Limits
Age

Borrowers must age between 21 and 65 years.

The maximum loan term is dependent upon the age of the borrower. Years remaining until retirement can be the maximum loan period for which the personal loan can be availed.

Credit Score

Recommended Credit Score - 750

Minimum Credit Score accepted - 625

Fixed Obligation To Income RatioExisting Fixed Obligation To Income Ratio must be less than 50%
Work Profile
  • Salaried
  • Self-employed professional
  • Self-employed non-professionals
Work ExperienceApplicant’s work experience is mandatory. It can range between 2-5 years, with at least the previous 1-year must be with the existing employer or in the existing profession.
Income

Salaried Individuals - Minimum monthly income of Rs. 15,000

Self-employed individuals - Minimum monthly income of Rs 20,000 

 Why is CIBIL Score Important to Avail Personal Loan in India?

Evaluating the CIBIL score is an integral part of lending. It is extremely important for personal loans as these loans are issued without collateral. CIBIL scores are helpful to borrowers too. The reasons why CIBIL score is important to avail a personal loan in India are:

  • Gauge Creditworthiness - The CIBIL score helps the lender assess the creditworthiness and repayment capacity of the applicant. A high CIBIL score is a reflection of the applicant’s good financial behaviour. This reduces the credit risk of the lender. 
  • Expedited Loan Application Process – A high credit score helps build confidence and win the trust of the lender. The personal loan applications that meet the eligibility criteria completely are processed quickly. The loan approval and disbursal happens in a matter of a few hours!
  • Competitive Rate of Interest – The lowest rate of interest advertised by the lending company is typically offered to borrowers who have a high credit score. With a higher credit score, the applicant stands a chance to seek a personal loan at the most favourable terms and conditions.
  • Increases Loan Eligibility – One of the aspects on which the personal loan eligibility is judged is the credit score. Borrowers who have a high credit score are eligible for a higher loan amount at a longer loan term.

How to Avail Personal Loan with Low Credit Score?

A high credit score for a personal loan ensures that you get the best-possible loan deal instantly. On the other hand, a personal loan with a low credit score will require a considerable amount of research and effort. But thankfully, it’s not impossible to get a personal loan with a low credit score. Here’s a quick help to enable you to avail of a personal loan with a low credit score:

  • Check Your Credit ScoreCheck your credit score when you plan to apply for a personal loan. Do not apply for a personal loan instantly if you have a low credit score. Try to build on your credit score for at least three months before applying. 
  • Compare Personal Loans Interest Rates For Low Credit Score – In case you require a personal loan immediately, compare the interest rates offered by different lenders. A personal loan with a low credit score will cost more. Therefore, it is important to carefully research and compares the benefits offered along with the terms and conditions applicable. Reviewing offers of different lenders and reading through the fine print is important.
  • Know Your Repayment Capacity – Take a loan only if you can repay it comfortably. This is important because any default in repayment of the loan will lead to a further drop in the credit score.
  • Check Eligibility – A pre-qualification or eligibility check will help you know the quantum of loan you’ll be eligible for on your current credit score. By doing this, you can save on a hard inquiry, which can lead to a drop in the credit score if the loan is rejected.
  • Provide Collateral – A secured loan is approved even if you have a low credit score. Contemplate pledging collateral to avail a personal loan with a low APR. 
  • Add Co-Applicants – By adding a co-applicant with a good credit score to the personal loan application, the loan eligibility increases. 
  • Include Income From All Sources – Club your income from all sources. A higher income increases the chances of getting a personal loan with a low credit easier.

Additional Reading: How to check cibil defaulters list?

Tips to Improve CIBIL Score in India 2021

A high credit score for a personal loan is crucial. How it can be improved include:

  • Pay Bills On Time – The best and the easiest way to boost credit score is by paying off credit card bills and EMIs timely. Timely repayments reflect responsible financial behaviour. 
  • Do Not Revolve Credit – The total outstanding on the credit card must be paid on the due date. Paying the Minimum Amount Due and revolving credit causes a dip in the credit score. 
  • Do Not Overspend - Getting near to or reaching the credit card limit frequently is a warning signal. It is considered exorbitant spending with heavy reliance on credit.
  • Keep Credit Utilization Ratio Low -. In case you are a heavy credit card user, apply for a higher limit credit card to reduce your credit utilisation ratio. The credit utilisation should not be more than 30% of the credit limit. 
  • Do Not Apply For Many Loans Simultaneously – Too many active loans at a time or applying for a loan to several lenders simultaneously does not go well with the lending companies. Furthermore, every rejection of a loan application affects credit score negatively.
  • Maintain a Balanced Credit Mix – Try to maintain a balance between secured and unsecured loans. Also, have loans for different tenures.
  • Apply For A New Credit Card – Having no credit history or inadequate credit history both are a reason for low credit score. Hence, applying for a credit card and repaying an outstanding amount in time helps you build and maintain a good credit score. Having two credit cards from different credit card providers will further boost the credit score.
  • Monitor Co-Signed Accounts – Applicant is equally liable for defaults occurring in jointly held accounts or accounts wherein the individual is a guarantor or a co-applicant. Therefore, it is important to monitor these accounts to improve credit scores.

Things to Keep in Mind While Applying for a Personal Loan

Once you are aware of how much CIBIL score is required for a personal loan, there are certain things you need to keep in mind while applying for a personal loan. These include:

  • Check Personal Loan Eligibility – A personal loan will be approved only if the eligibility conditions are fulfilled. Applying for a personal loan without fulfilling eligibility conditions can lead to loan rejection which can damage the credit score.
  • Check CIBIL Score – Know your CIBIL score. Also, check the minimum credit score for a personal loan required by the specific lending institution. This will enable you to get the personal loan at the most favourable terms and conditions.
  • Research Well – To get a personal loan at the lowest rate of interest, it is important to explore products carefully. Evaluate the benefits and compare the features of personal loans offered by different lenders carefully.
  • Reduce Your Credit Utilization Ratio – If you have a high credit utilisation ratio on your credit card, consider paying off the outstanding dues immediately. 
  • Work on Rejection Reasons – In case your previous loan application was rejected, do not apply for a fresh loan until you clear your cause of rejection. Furthermore, wait for at least three months before reapplying for a personal loan.

Also Check: Credit Policy of Banks

 FAQs

✅How much is CIBIL score required for a personal loan?

Lenders usually consider a CIBIL score of 750 and above for personal loans. In case the CIBIL score is less than 750, you can still avail of a personal loan at a higher rate of interest, provided all other eligibility conditions are met.

✅ How can I improve my CIBIL score for a personal loan?

Consider these points to increase your CIBIL score for a personal loan

  • Pay bills on time 
  • Do not revolve credit. 
  • Do not overspend
  • Keep credit utilisation ratio low
  • Do not apply for too many loans simultaneously 
  • Maintain a balanced credit mix 
  • Apply for a new credit card 
  • Monitor joint accounts

✅Why is CIBIL Score Important to Avail Personal Loan in India?

CIBIL score is important to avail personal loan because:

  • It helps gauge creditworthiness 
  • A high credit score expedites the loan application process 
  • Allows taking a loan at a competitive rate of interest 
  • It increases loan eligibility 

✅ How is the CIBIL score calculated?

CIBIL score is measured on a scale of 300-900. It takes into account four factors: Payment history (40%), Credit exposure (25%), Credit type and duration (25%), and other factors (20%).

✅ How are the values of credit score interpreted?

  • A credit score between 800 and 900 is termed Excellent
  • A credit score between 750 and 800 is rated as Good
  • A credit score between 625 - 750 is considered Average
  • A credit score below 625 is considered Bad