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High Cibil score is your ticket to a lower rate of interest | Home Loans in Hinjewadi | 1 and 2 BHK in Wakad, Pimpri, Chinchwad, Punawale

Interest Rate

What is the first thing that runs through your mind when you think of availing a new loan? Interest rates of course! Everybody in pursuit of credit wants to avail of it at the lowest possible rate of interest. Did you know that you can command a low rate of interest on a loan product based on a high CIBIL score? Let’s tell how it works. A low interest rate is desirable for any borrower as he has a lesser going out each month as a monthly outgo by way of an interest component.

A loan has two parts- the principal component and the interest component. The higher the rate of interest, the higher is your outgo by way of an equated monthly installment (EMI) that you will opt for on your loan. Naturally then, if your loan interest rate is low, your EMI is lower.

How banks decide upon interest rates

While there are benchmark rates of interest rates that each bank has on different loan products, they are not bound to give you the loan on the same rate of interest as may be specified on their website or any other such communication that you may have received from them. Banks decide upon the rate of interest based on your CIBIL score. When you apply for a loan, banks pull out your CIBIL report and CIBIL score. If your score is 750 and above, it is likely that you will get a loan at competitive rate of interest. In fact a high CIBIL score also gives you an advantage, and you may even consider bargaining with several lenders before you settle with one handing out the best rate of interest to you. On the other hand if your CIBIL score is poor and is way below the desirable level of 750, you are left with no power at all, and are at the mercy of lenders. Your CIBIL score is a measure of your creditworthiness, and a poor CIBIL score is reflective of the fact that your credit behaviour has not been up to the mark. As a result the prospective lender that you have made an application to for a loan views you as a “risky” customer who is likely to default on his repayment. The bank will then set an interest rate on the loan product that is higher than the industry benchmark. In fact, the bank has the discretion to even reject your loan application if it feels that you are too risky a customer.

How you can alter your CIBIL score

If a prospective lender is giving you a loan at a high rate of interest, you must check out your own CIBIL score and CIBIL report to see what has gone wrong. Most likely, you will have outstanding repyments on your credit card or loan repayments that have not been made on time. There are other factors such as a high credit utilization or how much of your total credit you have used up that have a negative bearing on your CIBIL score. There may have also been too many hard inquiries on your report, that happens when you have applied for too many loans in quick succession. Therefore, if you are being offered a loan on a high rate of interest, and your bank states that your CIBIL score is not satisfactory as a reason for the same, you may want to postpone your decision to take a loan and concentrate on bringing up your CIBIL score first. The easiest way to do so is to pay off your outstanding credit as soon as you can. Also, do not be impulsive about taking a loan and make several applications to different banks. Put in adequate thought before you make an application with a lender of your choice. At least six months before you decide to take a loan, pull out your CIBIL report and CIBIL score and see that everything is as desired in it. Only when you are satisfied with your own CIBIL score and have ensured that nothing is amiss in your CIBIL report, think of making an application to a bank for a loan that you require.

As we stated earlier, the moment you walk in with a high CIBIL score along with your loan application the ball is in your court. You can then be rest assured that the bank will then do all it can to get you as a customer. Your CIBIL score thus will not only open up doors for you, but is also your ticket to lower interest rates.

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