Why is a CIBIL Score Important?
01 Nov 2019
Started in 2000, CIBIL or the Credit Bureau is an authorized credit information company that tracks debt repayment history and provides a credit score accepted by a vast network of financial institutions as a valid benchmark to examine a potential borrower’s credit quality. Here’s why a CIBIL score is important:
Lender considers the CIBIL score before approving a loan
The information collected and maintained by the bureau is gleaned from data collected from banks and other lending institutions on a monthly basis. On the basis of this data, CIBIL issues a score. This score is shared with the lenders on request, when an applicant applies for a loan.
What is an ideal credit score?
The range is from 300 to 900. Any score higher than 750 is a decent credit score. If an applicant has a credit score higher than 750, he/she is likely to get the loan approved and may get an attractive rate of interest. A loan application may be rejected if the credit score comes out to be too low.
How to source your CIBIL report?
Apart from a CIBIL score, you can also get your CIBIL credit information report. The report details the credit quality of your auto loan, home loan, credit card, over draft facility and personal loans. It carries your personal details, employment details and account information. The procedure to source your CIBIL report is exactly the same as getting your CIBIL Score.
Components of the CIBIL report
The first part of your CIBIL report has your CIBIL score, which is a value between 300 and 900. A score closer to green that is above 750 is preferable.
Another section contains your personal information like name, date of birth, PAN number, Passport details and gender.
The contact Information segment will capture all your address and contact details.
The employment section will provide details about customer’s income and occupation at the time of a previous loan sanction.
An important section of the report is the account information which details the material about the borrower’s credit cards, loans, name of the lender, type of loan (whether secured or unsecured) and all the accounts held by the borrower.
Consumer Dispute Remark
The borrower can also put in their remarks about a particular loan transaction in the Consumer Dispute Remarks for evaluators to see every time the credit report is opened for assessment. The comments are presented for a year.
What is the best age to go for a Home Loan?
Buying a home is a dream for every individual across the globe. The only problem is affordability. Buying a house needs to fit the budget. One’s dream need to be realistic in order to achieve it.
From a lender’s point of view a person becomes eligible for loan if he is earning a sufficient income from a legitimate source. He has to have a steady source of income and enough saving after taking care of the regular expenses and other loans as he has, to repay the equated monthly installments (EMI) of the home loan. These factors are known as creditworthiness of the borrower and credit behavior of a borrower is assessed in India by what is known as CIBIL score.
The CIBIL score takes into account the credit history of the person, whether he had defaulted on his loans earlier and similar other points.
Another point that comes up is age which decides the tenure of the loan that is relevant for purchasing a property.
Age in isolation is not a factor, what the lender would also like to look at is the earning and repayment capacity of the person, quality of the property he is planning to buy and the loan amount he is seeking.
Let’s take the case of a house property which is worth say Rs 75 lakh which includes all taxes and statutory charges. Assume that the lender is willing to fund 80 percent of the amount, which in our case is Rs 60 lakh.
Now, let’s consider three person aged 25, 35 and 45 who approach the lender for the loan on this property.
These days the younger generation gets a good starting salary especially if he has a good education or is a professional. In our case let’s consider an average individual.
Clearly, a 25 year old person can take the loan for the longest period possible, which in India can be around 30 years. The middle-aged person can be eligible for the loan for 20-25 years. The eldest individual will get a loan with a tenure of 10-15 years maximum. The lender would consider the useful working life of the borrower before fixing a tenure.
Lenders generally hesitate to lend a housing loan to an elder person. Part of the reason is the limited working life he has in front of him and secondly because his obligations increases with age. Children’s higher education needs to be funded, their marriage and medical cost associated with him and his spouse which can lead to cash flow mismatch going forward.
However, if the older person has a strong income stream and needs money for a shorter tenure, lenders would be interested in it. They may or may not ask for more collateral against the property since in a small tenure window price fluctuations can act as an added risk.
Or they may consider taking a higher down payment which would mean a lesser exposure and time risk for the lender.
Another way the older person can improve the chances of getting a loan is by applying for it with a co-borrower. This way the risk of the lender is reduced and there are more than one income stream to take care of the EMI payment.
There is no fixed and ideal age for taking a home loan. Finally what matters is the affordability. As a rule of thumb the EMI outgo should not exceed 30 percent of the income. Anything higher would put stress on the financials of the individual.
Financial markets in India have now matured offering an individual multiple avenues of raising money. Having said that, assets like a home is best bought as early as possible in one’s life since after this he can concentrate on wealth creation.
Your Complete Guide -To The Home Loan Disbursement Process
Now that you have a thriving career, you are done living on rent. You have already picked your dream house.You have also narrowed down on the bank that you want to borrow your home loan from-like for example Bank of Baroda, based on low attractive interest rates, flexible EMI options and speedy processing and simple straightforward documentation. Now before you approach a financial institution, it helps to know how a home loan is disbursed. Here is a simple guide to the home loan disbursement process where we discuss the three stages of home loan disbursement.
Type of home loans
How the bank makes the disbursement really depends on what stage of construction the real estate property is at. If it is a resale or a fully constructed house, the bank may make full disbursement at one go but if it is partially constructed then the disbursement may also be done in tranches. Bank of Baroda home loans can be availed for different types of residential properties and purposes like
Purchase of a recently constructed house
Purchase of Residential Plot land
Construction of house
Home improvement/extension of rooms and area
The three home loan disbursement stages are:
Applying for the loan
First stage is the submission of the home loan application along with relevant original documents. The documents you would be required to submit include
Passport size photographs
Proof of identity, residence and age
Proof of office/business address
Bank statements of the last 6 months
Copy of Income Tax Returns of the last 2 years
Proof of investments such as insurance, fixed deposits or shares and stocks
Pay slips of the last 3 months for salaried persons
For business owners/self-employed persons: Verified copies of Balance Sheets, Profit and Loss accounts, IT Return, assessment orders, advance tax challans, (for both company/firm and personal account), VAT/GST Returns for the last 3 years
Copy of documents related to the property to be purchased
Home loan sanction
Once the application is submitted with the financial institution, the second stage is that of sanction and disbursement. The loan application will also go through technical and property verification, accompanied by inspections.
You receive the confirmation through a home loan disbursement letter, which is when you know that your loan application has been cleared. In the event that your loan application is incomplete or some documents relevant for the sanction are missing, you would be asked to furnish those before your loan is sanctioned. Documents like own contribution receipt, NOC or no objection certificates and sale deeds are legally examined by the bank’s legal experts. Once the lawyers approve of the legitimacy of the documents served, the loan application goes to the next stage of final approval.
Repayment schedule, down payment amount and dates
The bank officer will obtain the receipt of the down payment made by you and confirm the date when the first installment must be paid. Once the documents like the Credit Facility Application Form have been processed, the amount will be disbursed in single payment or in tranches..
Based on impressive credit scores of some of the old time borrowers, banks may also offer them pre-approved home loans.