Does CIBIL Score Affect Loan Against Property Eligibility?

Your CIBIL score plays a key role in determining your eligibility for a Loan Against Property. Lenders assess your creditworthiness based on this three-digit number, ranging from 300 to 900. This credit score is calculated based on your repayment history, credit mix, and loan tenor. A higher CIBIL score increases your chances of loan approval at favourable terms. Therefore, it is essential to maintain a strong credit profile.   

What is CIBIL Score?  

A CIBIL score is a three-digit number that reflects your creditworthiness and is derived based on your credit history and behavior. It is assigned by one of the most preferred bureaus – TransUnion CIBIL.

Ranging from 300 to 900, a higher score indicates diligent credit management. Lenders utilise this score to assess your creditworthiness before deciding upon your loan application. The CIBIL score evaluates various factors, including payment history, types of credit availed, and the duration of credit usage, to provide a comprehensive view of your credit profile. 

Understanding Loan Against Property

A Loan Against Property (LAP) is a type of secured loan that allows you to avail of funds by pledging your residential or commercial property as a collateral. It provides access to a substantial amount depending on your eligibility. You can benefit from a competitive interest rate and manageable EMIs along with a long, flexible repayment tenor.  

The funds availed of through a Loan Against Property can be utilised for various purposes, including business expansion, home renovation, or debt consolidation. 

How Does CIBIL Score Affect Your Loan Against Property Eligibility?  

As discussed earlier, your CIBIL score affects your Loan Against Property eligibility. Lenders use it to gauge your ability to handle credit and repay it within the specified tenor. It influences the following aspects of a loan directly:    

Loan Application 

A good CIBIL score can improve the chances of getting an approval on your loan request with a quick turnaround time.    

Interest Rates 

If you possess an excellent credit score, it becomes easier to negotiate with lenders for competitive terms. Whereas, a low 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 a higher loan amount. Anything lower may mean a reduced borrowing limit.  

Loan Tenor 

Secured loans such as a Loan Against Property can easily garner larger principal amounts, hence, they are offered with a flexible tenor to enable easier repayments. Borrowers can choose suitable tenors according to their preferences if they hold satisfactory credit scores.       

Also Read: Short Tenor vs. Long Loan Against Property Tenor - Which is Better? 

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 have a low 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 sizeable 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 

Disclosing additional sources of earnings can increase your eligibility for a loan.  

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.        

Apply with a Financial Co-Applicant

Lenders may offer a better Loan Against Property interest rate if you apply for a loan with a family member who has a good 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 will also be held liable for the loan repayments.

Also Read: Do You Need a Guarantor for a Mortgage Loan?

All four credit bureaus – Equifax, TransUnion CIBIL, Experian and CRIF High Mark – 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 can be an 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 from 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.