Ideal CIBIL Score for an Education Loan
Availing any kind of credit or loan such as a home loan, car loan, loan against property etc. requires borrowers to hold a healthy CIBIL score. An education loan is no different. When lenders receive your loan application, they will review it based on multiple parameters to appraise your credit profile and loan repayment capability. Among these, your CIBIL score, better known as a credit score, will be the leading determinant for securing a loan sanction.
Hence, if you intend to take up a student loan, check your credit score beforehand. You may also look up the CIBIL score of your co-applicant to gauge whether both scores are in the required credit score range. Thus, it is crucial that you understand the significance of your CIBIL score for a study loan and how it can directly impact your higher education plans.
What Is CIBIL?
Credit Information Bureau India Limited or CIBIL is India’s foremost credit rating agency along with Experian, Equifax and CRIF Highmark. The credit bureaus maintain financial records acquired through banks and lending institutions from all over the country. This information pertains to credit transactions made by individuals and organisations that have previously availed of any loan or credit or even made inquiries regarding one. Whenever needed, they provide these records to lending companies in the form of a credit report, summarising it with a three-digit CIBIL/credit score.
CIBIL Score for an Education Loan
Every time lenders receive an education loan application, they will pull up a Credit Information Report (CIR) from the credit bureau. It essentially depicts your past credit history and transactions, based on which credit agencies assign a credit score ranging from 300 to 900.
Normally, to ensure easier loan approvals, applicants must ideally have a good CIBIL score of 750 or higher. Scores closer to 900 are considered excellent, and individuals who fall in this credit score range can expect to gain the most competitive rates and terms. However, if you possess low credit scores, you may not qualify for a loan and even when you do, you might have to bear a higher interest rate and tougher terms.
It must be noted that CIBIL scores of applicants who have not availed any loan until that point will be mentioned in negative one or zero implying an absence of credit history.
Determining Your CIBIL Score for a Student Loan
Your CIBIL score for a study loan is computed through four major factors that include:
- History of repayment – This indicates consistency in meeting earlier EMIs. It shows how regularly you have repaid the instalments and also whether you have delayed or missed any payments.
- The loan mix – It denotes the kind of loans (secured or unsecured, long-term or short-term) you hold in your credit portfolio.
- Number of loans – This tells you about the number of existing loans and credit lines; and if you have applied for too many loans or credit cards in a short span of time.
- Credit limit – Optimal utilisation of the credit limit accorded to you establishes how responsibly you handle credit cards and/or other lines of credit.
Possible Effects of Education Loans on Your CIBIL Score
Just like any other loan, an education loan impacts your CIBIL score as well as your co-applicant’s. Once the repayment period begins, your credit scores may drop or improve according to your promptness in supporting the EMIs. For instance, consistent and timely pay-outs will increase the credit score while non-repayment or delay in instalment pay will lead to a steady fall.
What Is the Required CIBIL Score for Obtaining an Education Loan?
The minimum CIBIL score requirement may vary from lender to lender depending on whether they are a public bank, private bank or a finance company. While most lenders accept 750 as the general yardstick, some lenders may consider loan applications with lower credit scores. At the same time, they will also examine numerous other aspects to verify your eligibility for a student loan.
Availing a study loan with low CIBIL scores normally comes with a higher rate of interest because lenders will cushion the lending risks through higher returns. At times, some lenders may refuse loan requests outright without even deliberating or discussing the factors involved, which could further dent your credit rating.
However, if there are certain red flags in your credit report such as a loan write-off, loan waive-off, loan settled or bounced cheques, lending institutions will rightly reject your loan application for obvious reasons.
Importance of CIBIL Score While Taking an Education Loan
CIBIL score is one of the major deciders that can make or mar your loan approval. In case of an unsecured education loan, the importance of CIBIL score increases manifold. Lenders are more cautious and particular about the credit scores of both applicants as they seek reassurances for fulfilment of the stipulated financial commitment. Whereas in a secured education loan, lenders may exercise leniency since they already possess high-value collateral which safeguards them against possible defaults.
Regardless, for a student loan, CIBIL scores can make ample difference in obtaining suitable loan deals. Having a good credit score as well as other eligibility criteria can guarantee the following benefits:
- Lower rates of interest
- Quicker processing and approvals
- Larger loan amount
- Bigger credit limit
- Flexible repayment tenor
How to Get an Education Loan with Low CIBIL Scores?
In the event that you have a poor CIBIL score, you should consider opting for a secured education loan. Mortgaging valuable collateral like a house, land, flat, fixed deposits and bonds can fetch you loans in line with the value of security offered. Although lenders will still want to check your and your co-applicant’s CIBIL score; however, due to the collateral pledged, they may accommodate a lower score provided there are no other alarming signs.
So for example, you may wish to apply for a student loan with your parent as the co-applicant. But you find that s/he has a low CIBIL score and this will, in all likelihood, lead to loan rejection. In such a scenario, you could add someone else as your co-applicant who holds a good credit score. It will enhance your loan eligibility and also improve your CIBIL score.
Receiving the best education is one of life’s priorities and finances should not stop you from realising it. But first, research your funding options bearing in mind the overall cost of credit. Check your and/or your co-applicant’s CIBIL score online through lender websites for free. This will give you a fair idea of your eligibility for securing an education loan.
In case, your credit score is on the lower side, you should take corrective measures to boost the score. Assuming all other parameters are up to the mark, you may discuss your situation with the lender and try to work out favourable alternatives before commencing the loan application process.
