CIBIL Score And Personal Loan For Individuals

Blog Single

What is CIBIL Score?

CIBIL SCORE is an often heard word at all levels of people from individual to corporate. This terminology is used by banks and other lenders of loan, be it a Personal Loan or Business Loan or Property Loan. Therefore, it is important to learn and understand the basics of CIBIL. CIBIL is an organization, named, Credit Information Bureau (India) Limited collects and maintains records of an individual’s payments pertaining to loans and credit cards. Based on this credit history, a CIBIL Score is generated. Higher the score, stronger is your credit profile.

Financial constraint is a very common situation in anybody’s life or in any organization at some point of time. To tide over such a situation, people go for loan from banks and other financial institutions depending up on the quantum of loan, interest rate and type of loan.

What is Personal Loan?

Personal Loan is a loan sought by an individual, a salaried person or a self-employed person or person having other types of incomes like rental income etc., are classified as Personal Loan category. Loan will be sanctioned on the strength of the individual. When a loan application is processed for sanction, various aspects of the individual or the loanee will be examined like regular income of the person, his / her capacity to pay the principal and interest amount by EMI, nature of employment, business nature, longevity of service or business, strength of the organization and much beyond everything, the financial discipline of the person. Financial discipline is the habit of utilizing the loan amount for the purpose which is acquired from the financial institutions. It is a kind of unsecured loan disbursed under a great credit risk from banks which is taken for various purposes like marriage, medical, education, travel and various other personal purposes. It is also taken to repay any other loan. There are two ways of getting a personal loan.

Unsecured Personal Loan

It is the most common type preferred by most of the individuals for getting a loan without any collateral or security. It is being sanctioned under a credit risk from the banks and NBFC’s. For salaried professionals ten times of their monthly salary is calculated for the loan eligibility and disbursement. For the self-employed professionals their gross annual income is taken and 50% - 60% of their annual income is considered for the loan approval.

Secured Personal Loan

This type of personal loan is sanctioned by the banks under less risk against any collateral or security from the individuals like residential property, commercial property, plot, insurance, jewels, bonds or even shares of the company. This helps individuals in getting loan at lesser rate of interest than an unsecured one. For salaried professionals twenty percent of their income is considered and for self-employed 100% of their gross income is taken into account for loan approval and disbursement.

Why CIBIL score is so important?

CIBIL score is a three digit number ranges from 300 to 900 which elaborates a complete financial history of an individual. The score with 300 is least value and 900 being the highest value. Every banks and other financial institutions provide loans at great credit risk, whether an individual has the capacity to repay the loan amount. This score helps them to evaluate completely an individual’s financial performance like business transaction, payments history, credit card outstanding and many more. The score ranging from 300 – 600 outlines an individual’s poor financial performance, where they had many issues in repaying the previous loan amount. On other hand the score ranging from 600 – 900 indicates a good sign, having a clear and proper financial history. Banks provide loans at lesser rate of interest for an individual, who have higher CIBIL score. Thus every banks are interested to pull the CIBIL report initially or at any stages of the loan process to understand the repayment discipline of an individual. They also decide to approve or reject a loan application based on this score. Thus CIBIL score plays a major role in getting timely loan at lesser rate of interest from any financial institutions.

How to improve your CIBIL score?

It is interesting to note that, an individual, who do not have any financial history of transactions like previous loan track, credit cards or any other payments will have no CIBIL score and it is literally called as -1. It indicates that the person does not have any financial history and is new to get a loan. This is also an uncertain criteria in understanding the financial behaviour of oneself and also considered to be a great risk in providing loans for the individuals. This is initial stage of an individual in his financial career. It is advisable to increase the CIBIL score to get any financial support in future. For any types of loan like home loan, business loan, mortgage loan a proper CIBIL score is mandatory to get timely finance. Thus an individuals can start their financial career initially by taking a personal loan to improve their CIBIL score. This creates a financial track for future and it will also create a good score, when there is a proper repayment of loan amount with principle and interest on time. Following are the ways to improve the CIBIL score of an individual.

    • Paying the interest regularly on time without any bounces.

    • Clearing all the previous credit cards outstanding

    • Avoid over use of credit cards

    • Maintain atleast 40% of credit utilization and never exceed the limit.

    • Marinating a financial discipline, getting and utilizing the loan for specific purposes it is taken.

Following these steps would help to improve the CIBIL score of an individual. A score above 750 is a great boon for oneself in getting timely finance at low interest rate. An individual can impress a bank in deciding the interest rate and even banks approach them to provide funds rather than they search for banks for fund. This is not just a dream but it is realistic one.

Documents required for getting Personal loan

Salaried professionals

    • Last 3 months salary slip/pay slip from the current working company

    • Id Proof – Passport / voter ID / Aadhaar card / Driving licence

    • Address Proof – Passport / Voter ID / Aadhaar card / Driving licence

    • PAN card

    • Last 3 months bank statement

    • 2 Passport Size photograph

    • Recent Form 16

Self-Employed professionals

    • Id Proof – Passport / voter ID / Aadhaar card / Driving licence

    • Address Proof – Passport / Voter ID / Aadhaar card / Driving licence

    • PAN card

    • Last 6 months bank statement

    • Business registered proof – MSME/ SSI/ TIN/ GST

    • Last 2 Years ITR along with the balance sheet of the company

It is obvious that a great businessmen or even well settled person also face sudden financial crises at one point of time. Inspite of having many options to get funds, the most trusted one is getting from banks as loan. During this course of time, individuals with low CIBIL score are very much unlikely to be entertained by the banks and NBFC’s. This mentally and physically affects oneself. Thus understanding the importance of CIBIL score, one must actually give importance to it in marinating a good score. A person without any financial track must give importance to it and should take a personal loan today and should use it for right purpose to maintain a financial discipline. Many banks integrated their process through online portal, helping people to apply through online. It is check easy to know the loan eligibility by just applying through online personal loan. Any person can track their loan application status easily at any time through the corresponding banks online portal. It is the responsibility of one’s ownself to maintain good financial track which helps them to meet their financial requirements.