The CIBIL™ score is a necessary part of your financial journey. It assists financial companies in evaluating your creditworthiness. Your CIBIL™ score indicates your ability to make a repayment on the financial products that you avail. Therefore, lenders stay very focused on your CIBIL™ score when they offer you credit. When you default on your CIBIL™ score, the chances of getting a credit product like a loan against property are low. However, it is not impossible. Let us now read on to find out the impact of a low CIBIL™ score on the loan against property and how to get a loan against property with a bad CIBIL™ score.
How Does A Bad CIBIL™ Score Impact Loan Against Property?
These are some of the things that you must be ready for when you have a low CIBIL™ score.
You may get only lower loan amounts:
If you are having a low CIBIL™ score, banks may not lend you as much as they will lend to people with a higher score. This implies that other customers will be able to borrow as much as 70% or even more of the value of the property they pledge. When you apply for a loan against property, you will be eligible only for a lower borrowing limit, maybe as low as 55% of the property value. You will have to talk with the loan aggregator to see if a better deal can be made available.
You may be charged high interest rates:
People who have the best CIBIL™ score will always get the best loan against property interest rates. Commonly published interest rates are for people who have an acceptable range of CIBIL™ score. Banks will charge the highest interest rates to the people who have the lowest credit rating. In many cases, people with a low CIBIL™ score will always be charged 3% to 5% higher interest rates than those with a good CIBIL™ score. Always negotiate with the lender for the best deal.
The processing charges may be very high:
Low CIBIL™ scores also mean that banks and NBFCs will charge you very high processing fees. Lenders often do a lot of extra reviews for people who have a low score. Whereas, they will always levy the lowest processing charges to people with a good CIBIL™ score. This is because they want to lend to people who have a better record of repayment.
The processing time may be longer:
When you have a lower CIBIL™ score, the bank will conduct a lot of credit enquiries and other inquiries before they decide to give you a loan. This will make the processing time longer. While people with low CIBIL ™ scores can get their loans approved in a matter of days or rarely more than 1 week, people with low CIBIL™ scores will have to wait for about two to three weeks before their loans get sanctioned.
There might be extra documentation and paperwork:
People with a good CIBILTM score can get loans with minimal documentation. People who do not have a good CIBIL™ score may be required to submit more documents. For instance, documents related to taxes, utility bills, multiple proofs related to income channels, and tax history. There is no way out of this. You will have to be patient and submit all the documents that the lender asks for. The best way is to provide all the documentation as soon as possible.
There may be multiple rejections:
In many cases, lenders may reject your application for the smallest of discrepancies in the documentation or if they think there is even a probability of misrepresentation of any kind. Do not lose heart in case of multiple declinations and see if any lender is ready to give a loan with NA or NH in the credit history section.
Also Read: Faq Loan Against Property
How To Get A Loan Against Property With A Bad CIBIL™ Score?
Here are some tips to get a loan against property with a bad CIBIL™ score.
Tip 1: Pledge A High Value Property
Offering a high value property will increase your chances of getting a loan against property. When the value of the property you pledge as collateral is high, the lender is likely to offer a substantially higher loan amount. The high value of the property assures the lender of being able to manage the liability in case of default. So, even if you have a low CIBIL ™ score, you will be able to get a loan against property.
Tip 2: Proof Of A Stable Income
Lenders look for someone who has stability in terms of income. Having a stable and high source of income will boost your application profile. It projects you as a person who can repay the loan on time without defaulting. So, make sure that you can portray your source of income effectively. In case you have other sources, include them as part of your loan application.
Tip 3: A Low Debt-To-Income Ratio
The debt-to-income ratio is yet another important aspect that you must note when getting a loan against property with a low CIBIL™ score. It is the ratio of all debts to income. When the ratio is low, it means that the liabilities are low and it indicates that the individual is highly creditworthy. Lenders are assured of your ability to pay the EMIs on time as you are not servicing loan accounts beyond your capability. Having a debt-to-income ratio that is in the range of 30% to 50% is a recommended way to secure a loan against property for CIBIL™ defaulters.
Tip 4: Apply With A Co-Applicant
Signing up with a co-applicant who has a good CIBIL™ score will increase your chances of getting a loan against property. It is more probable that the lending institution is likely to offer a more lucrative line of credit with a lower interest rate.
Tip 5: Get A Guarantor
If the CIBIL TM score is not very low and lies somewhere between 600 and 700, the lender may be lenient. However, you will have to get a guarantor with a good CIBIL TM score who can support your application. Also, a future default also reflects on the guarantor. If you default with a loan repayment, the loan guarantor too is held responsible for the liability.
Obtaining a loan against property for CIBIL ™ defaulters is difficult but not impossible. Though the loan terms may not be as good as those who have a high CIBIL ™ score, it is unlikely that the bank or financial institution will not lend you a loan against property. However, you will have to be patient, take extra efforts, and be mentally and financially ready for high interest rates and other charges.
FAQS of Does CIBIL™ score Affect Loan Against Property?
1:What are the factors that are considered while computing the loan against property?
- Value of the property
- Existing commitments, if any
- Continuity/soundness of business/employment
- Borrowing track record in the past.
2:Is the CIBIL ™ score required for a loan against property?
Yes. The CIBIL ™ score is important for a loan against property. Lenders provide you with a loan easily if the CIBIL ™ score is high. However, if the score is low, it is not impossible to get a loan against property but you will have to be ready for higher interest rates, lower loan amounts, extra documentation, and multiple application rejections. A minimum CIBIL ™ score of 700 is must to avail a loan against property.