“When all doors are closed, God opens a window”
Moving into your own home is everyone’s dream. Given the current realty market and property prices, home loans are indispensible. Credit scores are the foremost checks that you must clear to be eligible for a loan. Does that mean that a low credit score is a dead end to all your credit aspirations? Absolutely not.
Credit scores are acid test of a borrower’s repayment capability and intent. Banks and other lending institutions obviously prefer to work with those who have a high score and often ignore those with a low score. A person with a low score is generally considered as someone who is a risky borrower.
You may have had a stroke of misfortune due to which you were unable to keep up with your financial obligations. Although it wasn’t your intention to not repay your debtors, this led to a low CIBIL score. Today you have rebuilt your repayment capacity but you find lenders are still wary of lending to you because of your poor credit record. At such times, you may feel stranded in the middle of nowhere with no help. The lower your score, the farther seems your dream of owning a house. Let us the clear the air a bit here. All is not lost. You can still be eligible for loans and can make improvements to your score. Read on to find out.
Home loans are secured loans as banks claim a lien on the property until the debt owed is repaid in entirety. Home loan interest rates are linked to the base rate. It is part fixed and part floating. Lenders offer different rates to different individuals based on several factors like their income, employer reputation and ofcourse, the credit report and score.
In India, several banks, NBFCs and other lending institutions work actively in the home lending sector. Depending upon their internal policy and credit scores, lenders decide the rate of interest. For someone with impeccable credit history, it is easy to find loans at favourable rates & terms. Whereas, for someone with a low score usually loans are approved at a higher rate of interest.
Banks are wary of lending to risky borrowers but NBFCs, such as Credit Sudhaar, are willing to lend a hand to those who have learnt from their mistakes in the past and are willing to make a fresh positive start by offering loan for CIBIL defaulters.
1 Approaching a NBFC who is willing to extend loans could be your best bet. NBFCs, who are also members of CIBIL report lending data back to CIBIL. If you service this new loan well then it will help your score ascend several points in a short time.
2 Another option could be peer-to-peer or colloquially speaking, P2P lending sites. The borrowers are lenders who have been shown the door by banks for having a low credit score. Lenders are also individuals who are willing to part with their own money for low return on their investments. Inspite of the high risk, P2P lending rates are quite low from the market. These loans are not reported to CIBIL and therefore they do not help your score to improve or further decline.
3 Alternatively, you could ask a friend or family member, with better CIBIL points, to step in as a guarantor or co-applicant to your loan application. This will improve your chances of bagging those much needed funds. Maintain their trust by repaying these on time as this loan will be reported on the guarantor/ co-applicant’s credit report too and missed payments will affect their scores equally.
4 Sometimes, they may not be willing to stand as guarantor or co-applicant, then you could ask them for an informal loan which you service well. This will have no impact on your credit score but will help financially achieve what you have set out achieve.
A dream CIBIL rating of 750 and more is achievable with patience, diligence and continuous efforts in the right direction. Don’t let a bad credit score stop you in moving ahead with your plans. Seek expert guidance in learning of ways to improve your score and make them a habit. With time, when the score improves it will be much easier to access the loan market at lower rates.