Does CIBIL Score Affect Loan Against Property Eligibility?

Credit Information Bureau (India) Limited or CIBIL score, also known as credit score, is one of the key eligibility considerations for banks and lending institutions when processing applications for a loan against property. It provides a quick summary of an applicant’s credit history as a three-digit numeral in the Credit Information Report (CIR); outlining an individual’s payment history, type of credit availed, duration of credit and so on. CIBIL scores range from 300 to 900 - higher the score, better your credit rating. 

Where Does CIBIL Score Matter When Applying For Loan Against Property? 

The CIBIL score affects your loan against property eligibility. Lenders use CIBIL scores to gauge your ability in handling credit and repaying it within the specified tenor. It influences the following aspects of a loan directly: 

Loan Application

Lenders undertake rigorous checks and measures, which could lead to a longer processing time for individuals with a low credit score. It might also lead to rejection of a loan application, especially if any minor discrepancies are found in the application or documentation. Meanwhile, a good CIBIL score can improve the chances of getting an approval on your loan request with quick turnaround time. 

Interest Rates

If you possess an excellent credit score, it becomes easier to negotiate with lenders for competitive loan against property interest rates and terms. Whereas, a poor score may fetch you loans at higher rates of interest raising the cost of credit. 

Borrowing Limits 

A good CIBIL score of 750 and above is considered essential for availing higher loan amounts - up to 90% of the pledged property’s market value. Anything lower may mean a reduced borrowing limit. 

Loan Tenor

Secured loans like a loan against property can easily garner larger principal amounts, hence they are offered with flexible tenors to enable easier repayments. Borrowers can choose a suitable tenor according to preference if they hold a satisfactory credit score.  

Processing Charges

Applicants with a less than ideal credit scores offer little incentive for lenders. They may be charged a heavier processing fee than those with impressive scores who possess a better repayment record.  

What To Do If You Have a Low Credit Score?

If you wish to avail of a property loan but are strapped with a poor credit score, here are a few practical tips that will help you receive a nod on the loan application:  

Offer a High-Value Collateral

Placing a high-value property as security can double your chances of obtaining a loan against property despite a small score. When you pledge a collateral of substantial cost, lenders will extend a generous loan amount depending on its market price. This also reduces the credit risk since lenders can manage the liability in case of a default.  

Show Stable Sources of Income

Borrowers having a stable and high income can repay loans on time without defaulting. If you have other sources of earnings, be sure to include them in your loan application. 

Have a Low Debt-to-Income Ratio

This is the percentage of all your ongoing debts with respect to your income. A modest ratio indicates fewer obligations and an ability to repay the loan EMIs. However, a higher ratio shows that you are servicing loans beyond your financial capability. Normally, a ratio between 30% and 50% is recommended for applicants with low CIBIL scores.       

Get a Co-Applicant

Lenders may offer better loan against property interest rates and terms if you apply for a loan with a family member who has an acceptable credit score.  

Apply with a Guarantor

In certain instances, lenders may be more accommodating if you get a guarantor, who possesses an adequate credit score, to support your loan application. Remember, in case of a default, the guarantor too will be held liable for the loan repayments.  

All four credit bureaus – Equifax, TransUnion CIBIL, Experian and CRIF Highmark – let you check credit scores for free once a year. Moreover, before you apply for a loan against property, rectify any errors or incorrect information in your credit report that could potentially harm your score. 

A loan against property is the ideal way to unlock the value of your property for availing the desired funds. But if you hold a moderate credit score, first and foremost, try to improve your CIBIL score which might require several months of disciplined credit activity. In the meantime, scout around for loan offerings of different lenders for the best and lowest interest rates. Check the loan against property eligibility criteria and the necessary documentation before you pick the right lender.