Shweta and Anita both had bought home appliances for their new home for Diwali, for which they had both taken a personal loan. After a few months as they were discussing their EMIs, Anita realized she was paying a higher rate than Shweta on her loan. This despite the fact that both borrowed around the same time from the same bank close to their office. Their demographic profile was similar and they worked with the same organization.
So why do you think Anita’s personal loan was costlier than Anita’s? It may not be obvious to many but it is because Anita had a lower credit score!
A low credit score means you have to pay more……………… :
If you have not paid attention to your credit score like Anita, here is a wakeup call for you. A low score could make many aspects costlier for you. Just like the personal loan interest rate for Anita went up, you could also end up paying more than that you would have paid if you had a better score. So here are a few ways in which things could become costly for you if you have a low score:
- Higher interest rates: As we saw in the above example a lower score could mean you having to pay more for a loan then compared to someone who has a better score. A small difference in the rate could also translate into a huge difference depending on the loan size and tenure. Thus you could end up paying more every month on your home loan, auto loan and personal loan EMIs.
- No preferential treatment for loan approvals: A good score entitles to you certain preferential treatment from the lenders. This could mean that you may get waivers in certain additional fee and charges that may be levied by lenders. However a low score means that not only do you have to pay a higher interest rate but also you miss on the chance of getting any concession on various fee and charges. A good score could mean faster loan processing so you could avail a special time bound concessional rate scheme or an early bird discount on a home or a car. You could lose out on these discounts as your loan would be processed in the usual stipulated time or may take longer if the score is low.
- Lose out on processing fee: When you apply for any loan the lender asks you to submit the processing fee along with the loan application. This fee is non-refundable, so if your loan application is rejected due to a low score then you will lose this money. Whenever you apply for the loan next time you will have to pay this fee again.
- Limited choice of lenders: This would especially be true in case your score is below average. A very low score could mean that many lenders are not willing to sanction you a loan, thus you will be left with very limited choice about which lenders to approach for a loan. If you are looking for a personal loan for low CIBIL score then you may have to look for options beyond the organized banking sector. These lenders will offer loans at very exorbitant rates, other terms and conditions may also not be very lucrative.
- Higher insurance premium: This is something which is prevalent in a lot of western economies and very soon it will become the norm in India too. In current times a low score means higher interest rate but very soon a poor score could impact your insurance premiums too. If you have a low score you may have to pay higher insurance premiums thereby making your insurance much more costly then it would have been otherwise.