How to Check Loan Eligibility for a Particular CIBIL Score ?

CIBIL Score is one of the most crucial factors when it comes to decision making (by the lender) regarding who to lend to for most loans but not for all. CIBIL score allows the lender to decide which loan applications to accept and which to reject. Having said that it is important to remember that different lenders have different threshold levels at which they are willing to lend. Also for different types of loans the level of CIBIL score acceptable will also vary. For some types of loans CIBIL score is not even considered.

So while a bank may be willing to sanction an auto loan at the CIBIL score of 650 the same bank may not consider sanctioning a personal loan at that CIBIL Score. Again another lender may sanction a personal loan at the level but with a higher rate of interest. Loan for low CIBIL score is a possibility but this option is an avoidable one (this is explained in later part of the post).

The chart below explains how loan eligibility and Credit score are related.

Type of Loan:

As discussed earlier the type of loan is an important factor that determines if a particular CIBIL score is acceptable. Generally for loans that are asset backed a lower CIBIL score might be acceptable when compared to a non asset backed loan. In the case of an asset backed loan the lender has some asset to fall back on, for recovery but in an unsecured loan this is not possible. For a few types of loans like gold loans, loan against deposit or insurance policy or securities the lender will not even consider the applicant’s credit score. Depending on the asset and the lender’s policy 70% to 90% of the asset value is sanctioned as loan and the asset is mortgaged to the lender.

In case of a personal loan the lender has nothing to fall back on; in such a scenario they would be very stringent about who to lend to and will like to lend to those with a very health credit score.

Lender’s Policy:

Each bank decides at what score they are willing to lend as per their polices and guidelines. Generally mainstream private and public banks will be less flexible about this parameter. Private lenders, co-operative banks and HFCs etc might be more flexible when it comes to credit score. They might choose to overlook the credit score in case the prospective borrower has a deep, long relationship with the bank, or if there is a guarantor involved or they may be willing to lend at lower scores as a policy matter or with a higher rate of interest.

Applicable Interest:

The credit score impacts the applicable interest rate that a customer has to pay for the loan. Lenders charge interest for allowing a borrower to use the money that is not his/hers and also for the risk they undertake when lending money. A higher risk profile is reflected by a low credit score; thus a lender might charge a higher interest and the converse is also true. Thus for a lower CIBIL score the borrower may be forced to pay a higher interest.

To Borrow or Not to Borrow with a Low Credit Score?

If you have a low CIBIL score the first thing to consider what type of loan you require. It is also a good option to consider loans that do not require a credit score as an eligibility criteria (examples discussed above) in case of a low credit score.

Some types of loan and lending institutions have room for flexibility so the borrower can explore the option of approaching a co-operative bank or make use of a guarantor or a co-borrower.

If the above is also not feasible then we come to the option of paying a higher than the prevalent interest and borrow from private lenders. This option is ideally avoidable as these loans are very expensive.

Ideally one should focus on keeping their credit score healthy and before borrowing try and start working a couple of months in advance to improve credit score. A low credit score indicates that all is not well with the financial health and adding debt is not a good idea in such a scenario. Instead of borrowing at exorbitant rates it’s better to try and improve your credit score and then borrow once things have improved. Loan eligibility for a particular CIBIL score is not universal; generally a score above 750 is considered good. For scores lower than that the type of loan, the lender’s policy and the borrower’s willingness to pay higher interest determine whether a loan will be sanctioned or not.

How to get a loan with a low CIBIL score

So you have a low CIBIL score and still want to apply for a loan. Follow the following steps to be able to have access to credit facilities:

  1. Check your CIBIL report thoroughly for any negative flags or more importantly an error since errors can lead to serious implications and result in loan application getting declined.

  2. In case you have had repayment issues in past and have unpaid amounts due on your accounts, please contact the concerned lender and pay them complete dues till date. Any outstanding past the due date again will have detrimental impact on your credit health and thus lead to underwriter declining your credit request.

  3. Once you have paid off your dues to the lending institution, they shall give you a letter of no dues. Do ensure that the letter being given by the lender explicitly states that the negative flags like “Settled” or “Written Off” on the particular account will be removed from the credit bureau report. Continued reflection of these negative flags again will lead to rejection from banks and thus making the availability of funds inaccessible.

  4. Errors on credit reports are common. Please check your report thoroughly. If you find any error on your report, please contact the concerned lending institution and CIBIL, and raise a ‘cibil dispute’.

  • On doing so, the CIBIL will forward the request to the financial institution that has reported the data.

  • Upon getting a clarification from the concerned lending institution, the credit bureau shall rectify the records. This shall in turn lead to improvement of your credit score.

  1. Remember that while your credit score plays an important role in the loan approval process, other factors are also taken into consideration by a lender.

    • This is especially true for loan products.

    • It is likely that a low score may mean approval of a loan at higher interest rates, or with other mitigating measures.

  1. Consider trying to better your credit score by getting professional help. A higher score will not only lead to you getting funds at the time of need, but also at a better rate of interest. A lower interest getting charged on your loan will result in substantial savings.