Sarbajeet K SenMoneycontrol
The next time you go to a lender to seek a loan, check your credit score beforehand. If you have a good credit score because of good financial habits or repayment and keeping your debt within limits, you might be able to get a better deal on the loan term, including a lower rate of interest.
Lenders, including Bank of Baroda (BoB) which announced lower rates on home loans on Wednesday for borrowers with high credit score, are willing to offer loans at softer terms to those who have maintained good financial discipline.
Harshala Chandorkar, COO, TransUnion CIBIL, says customers with good credit score can negotiate a lower rate on their loan which could be as much as a 75 basis points reduction. “While credit institutions have been using the CIBIL Score for making lending decisions, institutions like Bank of Baroda have started offering credit score-based lending to retail mortgage loan seekers, which involves providing differential rate of interest based on the borrower’s CIBIL score. Customers with a good loan repayment track record and strong financials may get loans which are at least 50-75 basis points cheaper than a customer with a bad credit score," Chandorkar told Moneycontrol.
She advises maintaining an equivalent of a Cibil score of 750 for getting laon approval. "Risk-based pricing of loans is a system of offering credit at a rate depending on the customer’s credit score. For instance, lenders may offer a higher rate of interest to you if you are viewed as a higher risk borrower ie your credit score is low as per the banks’ lending policies. Cibil score ranges from 300 to 900. The higher the score, better are the chances of getting cheaper loans and credit instruments. Based on Cibil data analysis we have observed that most banks are lending to individuals with a credit score of 750 and above," Chandorkar said.
Parth Pande, co-founder & CEO, Finance Buddha, advises those seeking a loan to first check their credit score to be able to wrangle a better deal not just on interest rate but on fees and quantum of loan as well. "In a lot of the cases since customers themselves are not aware of their credit scores, the situation of negotiation does not arise. But an informed customer is always able to extract an advantage from the lender, either in terms of lower rate, or lower processing fees or in other cases getting a benefit of a higher loan amount. These customer typically form part of the deviation pool and every lender earmarks some benefits for these deviations on excellent customers," Pande said.
He pointed out almost all lenders are willing to look at sweeter deals if the borrower’s credit performance is good. "Most banks have a policy around the same,” Pande said.