There can be situations when you may require a personal loan. It can be for an unforeseen situation, your wedding, a medical emergency, renovation, or an overseas vacation that you have been planning. You can get a personal loan approved easily to manage various emergency situations.
But wait, is it that simple to get a personal loan of your desired amount? Not quite.
When you apply for a personal loan, the lender checks your creditworthiness. They have to make sure whether you are capable of repaying the loan or not. This is where your credit report comes to play.
Let’s see why your credit report is so crucial.
What is a Credit Report?
The credit report is a compilation of your financial data that reflects how you manage your credit accounts. For a lender, it is the only source through which they can verify your credit history.
A credit report generally has a three-digit CIBIL score.
Specialised credit information bureaus like TransUnion CIBIL and Experian calculate your CIBIL score. These bureaus first create a report on a borrower’s credit behaviour.
Credit behaviour in simple terms means how diligent you were in repaying loans in the past.
The report has the details of your every past financial record. It includes the instances of whether you paid a credit card bill on time or not, skipped an EMI, or made a timely repayment of a loan. They also check the remarks left by lenders on your credit behaviour.
A credit score ranges between 300 to 900. Banks will grant loans to individuals with scores only above 750. The higher your credit score, the lower the interest rate will be offered to you.
Lenders, on the other hand, generally avoid candidates with scores below 550. Also, remember that your CIBIL score is dynamic in nature. It changes based on your behaviour related to the monthly loan repayments.
Importance of Credit Reports in Personal loan
These are the reasons why your credit report is vital –
Approval of Application
Your credit history is strongly influenced by the CIBIL score. It shows how efficiently you have repaid your debt. It also keeps track of how consistently you paid back.
It could be challenging for you to get any loan or credit card if your CIBIL score is low. If lenders learn that you have a significant debt load and a history of late payments, your loan request could even get rejected.
So, a good CIBIL score will increase your chances of your personal loan being accepted.
Your CIBIL score is a numerical assessment of your creditworthiness to a lender. It conveys to a lender your probability and capacity to make loan repayments on time. Moreover, a lender will evaluate CIBIL scores and minimise their risks by making outstanding loan offers to applicants with scores above 750.
However, this doesn’t mean that individuals with poor CIBIL scores cannot obtain a personal loan. Some financial firms would, but would probably charge higher interest rates.
Rate of Interest
When applying for a personal loan based on your CIBIL score, it is important to consider the interest rate. It is typically the deciding factor. A borrower in good standing has a high CIBIL score. You can even choose a lower personal loan interest rate.
Moreover, you will have the freedom of picking the lenders with the best offers. Reducing the interest rate on your personal loan may have a big impact on how long it takes for you to pay it off.
Controlling your loan repayment rate might make it easier for you to fulfil your monthly deadline. Your credit score will improve if you pay off your loans on the scheduled date, if not early. When you decide to apply for a personal loan online in the future, there shall be minimum chances of rejection.
Amount of loan
Your credit score affects both the amount of your personal loan and its interest rates. If your CIBIL score is good, a higher amount of loan might get sanctioned. In addition to the benefits already stated, a high CIBIL score guarantees that your personal loan is approved with the least amount of paperwork.
Your CIBIL score is crucial since it may allow you to obtain loans with long repayment tenure. Banks will offer you loans with maximum tenure if your CIBIL score is high. Long-term loans increase your chances of timely repayment but may come with a higher interest rate.
Personal loans have become quite common these days. Since the purchasing parity is rising, there is a subsequent inflation rate. In recent times, it has allowed the credit market to grow. The availability of personal loans has increased, and they are now being given in huge amounts. However, credit reports and credit scores still continue to be the deciding factor.
In the end, having a solid credit history is crucial. You won’t be eligible for any personal loans from banks if you have a poor credit history.
Personal loans come with many benefits, be it no foreclosure charges or zero pre-payment. You can get a loan at minimum EMIs with minimum documentation.
Piramal Finance helps you get better information on personal loans or any other type of loan. They have a team of experts who will guide you through the entire loan process. They will ensure that you have a quick disbursal and fast approval of your loan amount.
For individuals looking to fetch a free credit report, feel free to visit the official website of Piramal Finance for the same. You can scroll through their website to read various informational articles and to know about their products and services.