The loan market in India is quite large and diverse. From home loans to personal loans, a borrower can get many loans from a large number of lenders. However, most of the loan interest rates, including the home loan interest rates and the personal loan interest rates, depend quite heavily on the credit score of the borrower. If the score is higher, the applicant is offered a lower rate of interest, and if the score is lower, the interest rate offered jumps up. This is the most significant way in which the credit score affects a loan interest rate. Read on to know more.
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The effect of credit score on loans in India
Here are some of the main ways in which a credit score can impact a loan application in India:
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Interest rate
The main reason for keeping a good credit score is the interest rate. A borrower who has a high credit rating will be offered a lower interest rate. This mainly happens in the case of unsecured loans such as personal loans. The home loan interest rates can be fixed or floating, but someone with an excellent credit score can negotiate and get it lowered slightly. This is a significant way in which the credit scores impact the loan processes in India.
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Time of Loan Approval
These days, most of the loans are approved very quickly. You can apply for a loan online and know of your approval instantly. If the credit score is low, the loan may be rejected. You may then have to visit the lender’s office, negotiate with them, and undergo a lengthy procedure to get your loan approved. Have a high credit score and avoid such troubles by getting quick and instant loan approvals
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Repayment Term
The loan repayment terms are also different for people who have varying credit scores. A person who has a track record of clearing all his dues on time is given a free choice to select his repayment terms. However, the lenders are more conservative with people who have a poor track record. They may be forced to repay the loan on the terms provided by the lender. The lender would, in this case, impose a very cautious EMI scheme to ensure the amount is repaid by the lender who has a less-than-ideal credit history. Therefore, it is crucial to plan and design your personal budget effectively that can help you avoid such financial issues.
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Prevents drops in credit scores
This may seem like a loop, but it happens very commonly. When the applicant has a low credit score, his loan application is rejected. He makes another application with a different lender, which either gets rejected too or gets accepted after a lot of negotiations. These events further push down the credit score and make it even more difficult for the borrower to get a loan in the future.
In conclusion
The credit score depends on various factors such as the pay borrowing pattern, the repayment history, the frequency of loan applications, and so on. You should, therefore, be careful about your spending and repayment patterns and maintain the highest possible credit score at all times. Apart from getting a good personal loan or home loan interest rate, you can also get the loan quicker and enjoy a better EMI scheme.
The market is really very competitive. The lenders are required to make a continuous comparison and analysis among different investment portfolios. There is a huge amount of risk involved, prices are adjusted and the overall loan management is carried out. Lenders , thereby are extra careful at the time of sanctioning of the loan. They undergo a complete check and overview of the prospect. A credit score acts as proof and trust that the prospect is competent .
Most often, people ignore and skip the essential messages. There is a lack of awareness among people which make them suffer. Everyone is capable of reaching a good credit score. But, awareness is the first step, like working out daily is advisable. Similarly, people are required to keep track of their financial life.
At last, it all starts and ends at cultivating good financial habits. Owning multiple cards is okay provided you pay your bills on time and clear all your dues. People cannot hide anything as each, and everything gets recorded in the credit report. People must make a move carefully. Once the score is disrupted, it can take a year to recover.
I hope that this information has helped you. I wish you all the best for your financial journey.
