The interest rate is one of the most important factors that you must consider while availing a home loan. Every time you apply for the loan, you expect to get a lower rate of interest. To get a low rate of interest on a loan such as a home loan, you must have a high CIBIL score.
The desire to get a low-interest rate is mainly due to the EMI burden. Since the loan has two parts, the principal component, and the interest component, when the home loan interest rate is higher, the EMI will be higher as more money is going towards paying the interest component. So, in order to get a home loan at better interest rates, it is important to have a good credit score.
If your credit score is 650 and above, then there is a better chance of getting home loans at competitive interest rates. Also, if you have a very high score, you have the advantage of bargaining for a lower rate of interest with the bank.
Those loan applicants who have a credit score of 550 or above are offered loans at the highest rate of interest. Most banks do not approve the loan application of applicants who have a CIBIL score below 550. However, there are banks and NBFCs that provide them the loan but the rate of interest offered is as high as 30%.
How to improve the credit score?
If your credit score is low, there are fewer chances of getting a home loan at better interest rates. But, you always have the option to build your credit score by maintaining it and altering your financial disciplines.
- Pay credit bills on time: It is important to settle your credit card bills on time and in full. Unpaid bills and credit card balances reflect in your credit history, bringing down your score. Late card payments not just impact your credit history, you also end up paying a hefty interest rate. Hence, always settle your card dues before the due date.
- Pay EMIs of existing debts regularly: If you have a loan or debt running, make sure you clear it by regularly paying EMIs on time. If you don’t default on EMIs, your credit score will improve with every passing month.
- Check for errors: It may be possible that your credit score is low due to errors on your credit report. If errors are detected, they should be highlighted to the credit information agency as per their reporting process.
- The 30% rule: Try to limit your credit card spending to 30% of your card’s limit. This shows that you do not spend much and save your earnings. This helps a lot in increasing the credit score.
- Use the oldest credit card: Older the credit card, the better is the CIBIL score. If you make timely payments on your credit card, then you should keep it active as it will lead to a good credit score.
Conclusion: Interest rate plays an important role if you are planning to apply for a home loan. To get a low rate of interest on a loan such as a home loan, you must have a high CIBIL score. The desire to get a low-interest rate is due to the home loans EMI burden. When the interest rate is higher, the EMI will be higher as more money is going towards paying the interest component. So, in order to get a home loan at better interest rates, it is important to have a good credit score. A credit score of 650 and above is considered suitable to get a home loan at better interest rates.
Also, if you have a very high score, you have the advantage of bargaining for a lower rate of interest with the bank. On the other hand, if your credit score is below 550, you will get the loan at a higher interest rate. But, you need not worry as there are several ways to improve your credit score such as you should pay your credit card dues on time or if there is any running loan or debt, you should pay the EMIs before the due date. You should also check for errors in your credit report.
If errors are detected, they should be highlighted to the credit information agency. So now, that you know how the CIBIL score plays a vital role in offering you the best home loan rates, you must maintain a good credit score.
Now, that you know how the CIBIL score plays a vital role in offering you the best home loan rates, you must maintain a good credit score. A credit score of 650 and above is considered a good credit score by the lenders for offering you a home loan.