How does a low CIBIL score affect the education loan?


Planning to study abroad but being stuck on how to finance the costs to meet the expenses is one of the major concerns for aspirants. Overseas education loans are the best available options to manage all the sky-high expenses without stressing yourself out. Moreover, education loans abroad work as the best financial tools to meet the cost of studying abroad. However, there are so many factors that will hinder your ability to easily avail of the loan. Among these factors, the CIBIL score is the game-changing factor when it comes to education.

A low CIBIL score can hamper your aspiration to get an education loan for abroad studies.

What is the CIBIL score?

CIBIL (Credit Information Bureau India Limited) is the information agency that calculates the three-digit numeric summary of a borrower’s credit history. CIBIL, or credit score bureau, maintains and calculates credit worthiness, which in a simple sense is a reflection of how well an individual has managed their finances in the past. The CIBIL credit score usually ranges between 300 and 900. The higher the CIBIL score, the more appropriate it is for an individual to avail of an education loan for abroad studies.

The high CIBIL score falls between 720 and 900. However, the CIBIL score is less than 620. A higher CIBIL will increase your chances of getting a study abroad loan or any kind of loan from the lenders. A low CIBIL score means you have low credit worthiness and less capacity to repay the loan on time, making it riskier for the lenders to credit the loans to someone with a low CIBIL score.

The CIBIL score is an important factor for lenders when evaluating the borrower's loan application. But how is your CIBIL score determined, and what are the parameters for its calculation?

As mentioned earlier, four major factors are considered important for the calculation of your credit score. Payment history is one of the biggest factors in determining the CIBIL score of a person in a positive or negative manner. Another important factor are the outstanding dues associated with your credit card payments or the defaulted or late payments of loan EMIs. Moreover, overdue payments can negatively impact your CIBIL score.

Importance of CIBIL score in overseas education loans: 

The CIBIL score is one of the important factors that determines the acceptance of your loan application. It also holds an important value in an unsecured loan since it will assure the lender about the repayment capacity of the borrower. In unsecured education loans, NBFCs and private banks lend the study abroad loan based on the CIBIL score and the earnings of the applicant and co-applicant. Having a good CIBIL score will help in availing certain benefits of an education loan abroad.

  • Low Interest Rate on Loan: If you have a high CIBIL score, lenders can provide you with a comparatively lower rate of interest on an education loan.
  • Easy and Quick Approval from the Lender: A good CIBIL score for the applicant will help them get easy and quick approval from the lender.
  • Higher Loan Amount: A higher CIBIL score can make a difference in the loan amount as well. Any applicant without any default payment history whose CIBIL score ranges between 720 and 900 is worthy enough for the candidate to get the high amount of an education loan.
  • Longer Tenure: A longer tenure for loan repayment will reduce your monthly burden of paying heavy EMIs. It will reduce the number of EMI payments and be helpful in managing your monthly expenses in a better way. An applicant with a good CIBIL score may avail themselves of a longer repayment option for education loans in comparison to those with a low CIBIL score.

Reasons for a low CIBIL score: 

  • Irregular payment behaviour
  • Late payment of credit cards
  • Default payment of EMIs

Smart ways to improve the CIBIL score of a person:

An individual can follow the following smart ways to improve their CIBIL Score:

  • Responsible Repayment Behaviour: If you have taken any loan for your needs, it's important to make the repayments on time. Timely repayments reflect the responsible behaviour of the borrower and prevent you from becoming a defaulter.
  • Timely payment of EMIs and credit card bills: Late payments of credit card bills and EMIs after the due date can negatively impact the CIBIL score of the borrower. Timely payment can reduce the chances of getting the loan in the future.
  • Use the ECS (Electronic Clearing System): The banks offer the ECS as a service to automatically transfer funds from one bank to another. It can be used to make on-time payments on EMIs. ECS is a useful method to pay the EMIs on time without any delay.

How do I get an education loan with a low CIBIL score?

  • Apply for a secured education loan:

Any applicant with a low CIBIL score must go for the collateral-based education loan. In secured loans, lenders do not care much about the CIBIL score or credit worthiness of the borrower. Even if an individual has a poor CIBIL score, they can opt for collateral loans as they are easy to get.

  • Check for errors in the credit score report:

Anyone with a low CIBIL score must check their CIBIL score on a regular basis. If any errors are found, you can check for an evaluation from the credit rating agency. Errors are common, but keeping a regular check will be helpful in maintaining a good CIBIL score or improving it in the future.

  • Opt for a private lender or NBFC:

It's better to get the loan from the NBFC or any other private lender instead of a private bank because, due to their strict eligibility criteria, it will be difficult for the borrower to meet the requirements, and the chances of rejection will increase. That’s why it’s better to approach a private lender, or NBFC, due to their easy-to-meet conditions and flexible criteria for lending loans. Not only does this private lender consider academic performance and university listings, but it will also be easier for you to apply for an education loan from a private lender.

For instant student loans online, an individual can contact the Education Loan Guru.

By Education Loan Guru