A high CIBIL score helps you get a low rate home loan. Pay Credit Card Bills On Time Save Money With Future Loans
In the wake of the holiday season, HDFC is offering a reduced interest rate of 6.7% per year on home loans. But there is a catch. It is intended only for borrowers with a CIBIL score above 800. For those with a relatively lower credit score, the interest rate will be between 6.8% and 7.3% per annum for loans from less of ??30 lakh.
Loan seekers who have a high CIBIL score are usually offered the best loan deals. If your creditworthiness is high, housing finance companies and banks tend to offer loans at the cheapest interest rate.
Harshad Chetanwala, co-founder of MyWealthGrowth.com, says: âA good credit score is not only helpful in getting new loans at a lower interest rate, but also helps people with existing loans to contact their customers. bank to also review the interest rate. “
Although the interest rate difference may seem small, the interest accrued over a period of time may grow into a large sum.
Let’s understand this with the help of an example.
Suppose you want to borrow a home loan for less than ??30 lakh for a 20-year term. The interest rate difference can be 0.5% per annum (7.3% – 6.7%) due to your higher CIBIL score.
If the principal amount is ??20 lakh, then the interest of 6.7% would result in an outflow of interest amounting to ??16,35,491.
On the other hand, for the same loan amount, the interest charged at a higher rate of 7.3% would accumulate for ??18,08,360. This means an additional total interest expense of ??1 72 869 just for your relatively lower credit score.
Likewise, the same loan amount of ??20 lakh and the difference in interest of only 30 basis points (7% – 6.7%) would lead to interest amounting to ??17 21 435.
This means additional interest from ??85,944. It sounds like a small amount, but when someone charges you for this amount for no other reason than the fact that you took longer than usual to pay your credit card bills, it certainly is. an avoidable and unnecessary expense.
What is a CIBIL score?
CIBIL is a credit reporting company that measures the creditworthiness of borrowers in India. It assesses clients’ creditworthiness by a measure called CIBIL score – a three-digit number between 300 and 900 – to assess a client’s ability to repay loans.
The score of 800 and above is considered good while those with a score between 600 and 700 have a hard time getting their mortgage approved.
Your credit card spending affects the CIBIL score
When you keep your overall credit card spending below 30% of its overall limit, it is considered good for your CIBIL score. When you borrow more than that, it will negatively impact your credit rating.
Remember, when you make a credit card purchase, you usually have 45 days to pay for that purchase. On the payment due date, you can either decide to pay the minimum amount or clear the total due for that month. However, when you pay the minimum due, you carry over your contributions for that month to the following month. This way you are hampering your CIBIL score. And as we have seen, a high score can help you save a lot of money in the form of unpaid interest on future loans.
So, we can conclude that paying your credit card bills on time, and clearing your bills instead of just paying the minimum owed will help you get a good CIBIL score, and therefore a lower interest rate on your home loans.
Title: How to maintain a high CIBIL score
â Limit your overall credit card spending to less than 30% of its limit.
â When you borrow more than 30%, it will hurt your credit rating.
â On the payment due date, clear the full amount owed for that month instead of the minimum owed.
â When you pay the minimum due (usually 5% of the total due), you carry over your contributions for that month to the following month. This way you are hampering your CIBIL score.
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