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What is a personal loan?

A personal loan is a loan taken by an individual to fund personal expenses like a wedding, make renovations to the home or even for a vacation. Unlike a home loan or auto loan there is no restriction on how the borrowed amount is finally used – the borrower has full freedom to use the money for any purpose they want.

  • There are three attractive features of such a loan:
  • Complete flexibility of end-use

Lack of collateral. It is an ‘unsecured loan’ and you are not required to provide any security in the form of cash, shares or any other assets.

CIBIL™ Score for Personal Loan:

CIBIL™ is one of the four authorized credit bureaus in India which provide a credit score, the others being Equifax, Experian and CRIF High Mark.

Personal loans are unsecured loans. They are based on the borrower’s ability to pay the money back. Thus, unlike a home loan or auto loan where the loan is secured against the property or vehicle, the bank bears the entire risk in the case of a personal loan

A personal loan is granted for personal use as detailed above. Naturally, the higher your score, the better are your chance of being approved, as the lender is loaning you the amount purely on the basis of your high credit score and credit report.

What do you think is the minimum score for banks to provide a Personal Loan?

A CIBIL™ score ranges from 300-900. There is no fixed minimum score in order to get a loan. Typically, lenders look for a score of 750 or above in order to further process your loan application. It is possible to get a loan with a score less than 750, but you might face harsher loan conditions such as a higher interest rate, smaller loan amount, shorter repayment period and more documentation

Things you should know before you apply for a Personal Loan:

  • Ensure that you have a decent credit score of at least 750 before you apply for a loan to maximise your chances of success. If you apply with a poor score, there is a high chance that you may be rejected. Each rejection adversely impacts your credit score.
  • Do not apply for multiple loans or credit cards at the same time. Lenders view it as being ‘hungry’ for credit and may reject your loan as they may be afraid that you will be unable to fulfill your debt obligations.
  • Always remember that if you have a lower credit score you will pay a higher interest rate and having a higher credit score will get you a lower interest rate.

Therefore, while there is no fixed minimum CIBIL™ score to apply for a loan, it is recommended that you ensure that you have a credit score of at least 750 before you make an application.

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4 / 5 (6 Reviews)
23 Jul 2020

Credit Report Analysis,Usefulness of information,

8 Jul 2020

Usefulness of information,good

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