A low CIBIL Score has a variety of disadvantages, including the possibility that your loan application may be refused instantly, that you might have to wait longer than usual, that additional paperwork will be necessary, and that you will have to pay a higher rate of interest on your loan. Whether you realise it or not, a poor CIBIL score affects you in a variety of ways. Many times, your CIBIL score is poor because of your repayment practises or because of a credit report issue that you are unaware of. As a result, it is advised that you monitor your credit report on a frequent basis to ensure that there are no inaccuracies.
Here is a list of some of the disadvantages that come along with a Low CIBIL Score
Loan Rejections
When you apply for a loan, one of the first and most essential elements evaluated is your CIBIL Score. Of course, while applying for a Home Loan, additional criteria such as your salary, previous debts you’re paying off, and your employment status are taken into account. But when you apply for a personal loan or a credit card your CIBIL score is one of the major factors that decides the fate of your loan application. Getting rejected for a personal loan can be tough as personal loans are generally applied for in times of urgent requirement of funds. Getting rejected on a loan at a difficult time can be challenging. Whereas, getting rejected for a credit card can further lower your CIBIL score. On the other hand, your CIBIL Score is seen as a direct indicator of your creditworthiness. It also reveals how likely you are to repay the loan. As a result, no lender will want to lend to someone with a bad credit history.
Higher Interest Rates
While some banks may just turn you down, others may be prepared to lend to you despite your low CIBIL score. To compensate for the higher risk of lending to you, they may agree to lend at a higher rate of interest. Whereas, on the other hand if you have a high CIBIL score you are more likely to get an affordable rate of interest on your loan application along with instant approvals.
High Monthly Repayments
While some lenders may offer you a loan with a higher interest rate, others may offer you a loan with terms that are less favourable to you like higher monthly repayments or lesser approved loan amounts. For example, the amount of the loan that has been granted may be significantly less than what you originally demanded or applied for, or a shorter loan tenure may be permitted. A shorter loan tenure with the same loan amount would result in higher EMIs. Other than that, it’s possible that your loan will require a greater down payment to be approved.
These were the major disadvantages that come along with a poor CIBIL Score. Apart from these there are a number of other disadvantages that might vary from one lender to another. Therefore, it is important to maintain a good CIBIL score before applying for a loan or credit card in order to avoid such disadvantages.