Mr. Nath was in the process of making a checklist that comprised of aspects to focus on before he started to look for a home and get a loan for it. Here are a few things that were included in the list made by Mr. Nath:
While it seems he is making a comprehensive list, one very important aspect does not seem to be included in the list and that is; Check your Credit Score
Just like many aspects (mentioned in the list), credit rating is another aspect that needs to be considered when one is applying for a loan and this should ideally be done a little ahead of applying for the loan. Checking the credit report a little in advance will ensure that if there is a need to work on the credit score the applicant has sufficient time to do it, waiting for the last moment will need no time to for the applicant to better his/her credit score if required. Getting a home loan for low CIBIL score poses a few challenges and any applicant would ideally like to avoid them.
Let us understand why credit scores is important when one is seeking a loan to buy their home; below we discuss a few reasons for their importance:
If one is planning to seek a loan from the mainstream organized financial sector then a healthy credit score is mandatory. Any lender will like to ensure the safety of the funds that they lend; lenders would obviously prefer borrowers who are likely to pay their dues in full and on time. A look at the credit history of an individual lets the lender assess this. Looking at the past they can predict if the borrower is likely to pay his dues on time or not. They are also able to judge if the person is over-leveraged; if someone already has a huge debt burden adding home loan burden may not be a good idea. The CIBIL score is an indicator of the credit health of the applicant and allows the lender to choose clients who present a low risk profile.
If you are a looking for a home loan you will understand that even a small difference in the interest rate or the processing fee could make a huge difference on the overall cost burden for the borrower. Thus ideally an applicant would like to approach a lender who is likely to offer them the best deal in terms of the interest rates and also other charges. In current times HDFC home loans, ICICI home loans, AXIS home loans to name a few are available at interest rates starting at 8.35% (floating rate) which is almost the lowest in the present scenario. Thus the applicant would want to explore the option of borrowing from these banks; however if the credit score is low then the borrower’s options are limited as he/she will not be sure of his application being accepted and he/she will have to approach lenders who might be willing to lend to those with a low score but at higher interest rates.
A good score not only gives the lender a wider choice but also allows them to negotiate a good deal for themselves. Lenders charge interest on the amount they lend as cost for the risk of default (by the borrower) they bear. A higher score indicates a lower risk profile, which means that the lender would be willing to lend at a lower rate as they (lender) are undertaking a lower risk when lending to someone who has a high credit rating. This is not something that will be done as a policy by the lender and the applicant will have to negotiate a lower rate with the lender. A good score could also get a waiver for the processing fee or other charges for the applicant and reduce the turnaround time for getting the loan approved.