CIBIL score (Credit Information Bureau (India) Limited) is an important factor considered by lenders when evaluating an individual’s creditworthiness for various financial products, including for house loan.
A low CIBIL score usually indicates a higher credit risk for lenders, which can make it more challenging to secure a mortgage.
Ashish Kumar, 36, missed a number of credit card payments last year, which severally impacted his credit score. With a poor score, he is now finding it hard to raise a house loan. Although he has been given critical feedback on his application, he is still hopeful.
However, it’s not impossible to get a mortgage with a low CIBIL score, but it may come with certain limitations and conditions.
These are some of the conditions
Rate of interest: Ashish may be told to get a loan at a higher rate of interest. Lenders may give loan to the ones like Ashish with low CIBIL scores at a higher rate of interest when compared to those with better credit scores. This is because they perceive individuals with lower scores as higher-risk borrowers.
Upfront payment: Lenders generally require a higher down payment from applicants with low CIBIL scores. This is a way for lenders to mitigate the risk associated with lending to individuals who have a history of late payments or defaults.
Guarantor: Some lenders may permit applicants with low CIBIL scores to secure a mortgage by having a co-signer or guarantor with a higher credit score. This guarantor, in this case, will be equally responsible for the loan repayment.
NBFCs: There are some non-banking financial companies (NBFCs) that are relatively speaking more flexible in their credit score requirements when compared to commercial banks.
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These lenders may also impose stricter terms or even charge a higher rate of interest. Additionally, it is recommended to improve your CIBIL score before applying for a mortgage.
This can be done by paying bills on time, reducing credit card balances, and avoiding new credit inquiries.
So, as we summarise, we can say that it’s possible to get a mortgage with a low CIBIL score, it generally comes with higher costs and stricter terms.
Frequently Asked Questions:
Should you get a mortgage at a higher cost?
It’s important to carefully evaluate financial situation and consider whether taking on a mortgage under these conditions is the right thing to do.
Besides, one should seek advice from a financial advisor who can give valuable insights.
What is the key disadvantage of taking loan with poor CIBIL score?
The key disadvantage is that lenders give loan at a higher rate of interest as compared to borrowers with better credit scores. They may also tell them to give a higher down payment.
ALSO READ: How does foreclosure of loan impact your credit score?
What is the role of a guarantor in a credit application?
When borrower is not seen creditworthy, s/he may be told to bring a guarantor to support his/her application. The guarantor, as the word suggests, is equally responsible for the loan repayment.
Why can one opt for NBFC over a bank while raising a loan?
In case a borrower has a poor credit score, s/he may find it hard to raise loan from a commercial bank. In such a scenario, it is advisable to approach an NBFC for a house loan.
Why do banks determine rate of interest on the basis of borrower’s credit score?
Credit score signifies creditworthiness of borrower. The higher the score, higher are the chances of loan repayment. Conversely, when the score is poor, borrower is not seen creditworthy enough by the bank to give loan to.
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Published: 17 Mar 2024, 10:35 AM IST