Personal loans can come in real handy if you have a financial emergency and no savings to fall back to. I can go on talking about how wrong it is to not have any savings at all. But, sometimes, emergencies may arise when you need extra funds. In such situations, you need a helping hand. This can be in the form of financial support from your family and friends, or it can be in the form of a personal loan.
But how to get a personal loan, quickly? In a matter of minutes?
Or as they say, how to get an instant personal loan online in India?
These days, many lenders advertise that you can get personal loans disbursed (and not just approved) within 5 minutes!
How is it possible?
And can you do something that if in future you do need a personal loan, then you can get this quick personal loan?
The answer is Yes.
Remember, that personal loans are unsecured loans. There is no security or collateral here. This is unlike home loans and gold loans where there is some collateral for the lender to reduce their risks of repayment default by the lender.
Since there is no collateral in personal loans, lenders need to be careful when giving our personal loans. You might be a good person at heart and do not intend to default. But lenders need proof that you would repay your loan in full and with interest. They also need to be sure that you have a steady income, are financially responsible and don’t borrow more than a certain limit, and have the capability of repaying the loan.
This credibility is established via one’s credit history and is summarized through a credit score. In India, the most popular credit bureau is CIBIL and its score, CIBIL Score is what is most widely used by lenders to assess the credit-worthiness of borrowers. CIBIL is just one of the 4 credit information companies (CICs) in India. Others are Experian, Equifax, and CRIF Highmark. Each of them maintains the credit histories of all the retail borrowers and generates a credit score based on their frameworks.
Credit Score (or CIBIL Score) is a three-digit score ranging from 300 to 900 allocated to each borrower that is an assessment of their creditworthiness and repayment capability. A score of 300 is extremely poor while 900 is the best score a person can have.
Lenders, in general, consider a CIBIL of 750 or higher as a good CIBIL credit score for a personal loan.
So if you were to ask me that – What is the minimum CIBIL score to get a personal loan? then I would say that having a score above 750 can get you access to personal loans with relative ease, at relatively lower interest rates, and for a higher loan amount. But this is not a guarantee. There are other factors at play too. Also, this doesn’t mean that a CIBIL score below 750 will not get you a personal loan. You might still get it. But the terms will firmly be decided based on your overall eligibility. So your efforts to get an instant personal loan may take some time while the lender carries out various verification checks.
From what I understand:
- A score above 750+ is considered very good. Higher the better. This gives you the best chance to get a quick personal loan. A score above 800 might provide access to instant personal loans! You also get access to better (and lower) interest rates, higher loan amount, higher loan tenure, lower processing charges, etc.
- Scores 600-749 are considered average and have higher risks. These might still get personal loans but at higher interest rates, shorter tenures, and of lower amounts.
- Scores 300-599 are considered to be poor. It shows that the borrower has a bad credit history and it’s an indication to not give new loans to the applicant.
As you can see, it’s in your best interest to have a high credit score, i.e. above 750+ if you want to get approved for a personal loan and get it at the best possible terms. You might not need a loan right now, but it’s best to have a good CIBIL score as you might need to borrow in the future. Your CIBIL score will also play a role in securing approval for other types of loans such as car loans, home loans, etc.
So how can you increase and improve CIBIL Score?
Here are few points that have an impact on your credit score:
- Loan Repayment History – This is most important. If you have paid all your dues and EMIs on time and in full without fail, you will have a good score. Missing an EMI once or twice over a few years will not impact your score much, but if you are irregular and have a bad repayment history, then you will get a poor score. A consistent, timely repayment is what gets you to the top. And remember that if you default on a loan or credit card dues, or your score will continue to be adversely impacted for the long term. And by long-term, I mean several years.
- Credit Utilization Ratio – This is a ratio of the current outstanding amount to your existing credit limit across all loans like a personal loan and credit cards. I am not sure but from what I hear, this should be maintained around 30% or below. If it remains high for a very long time, it negatively impacts your credit score. A lower credit utilization ratio shows that you have responsible credit behavior.
- Mix of Credit Types – Your loans can be secured (like home loan, gold loan, car loan, etc.) or unsecured (like personal loan, credit cards, etc.). Having too much unsecured credit makes one seem that you are at higher risk of future default. It’s best to have a proper balanced mix of secured and unsecured credit.
- Credit History Vintage – The older your credit history of loans and credit card usage, the better your CIBIL score will be (but if you have managed them well as well). A long history of properly using credit indicates that you are a prudent borrower who knows his limits and also repays on time. The lenders want to lend to borrowers like you!
Getting a quick personal loan in emergencies can be very helpful when you are really desperate for some financial help. But how does the lower interest rate that is given to high score borrowers impact your finances?
Let’s say you need a personal loan of Rs 10 lakh for 5 years. Now generally, you will see personal loan rates from 10% to 36%. How does it impact your EMI and total interest paid? Let’s see.
Remember – Lower interest rates are available to those who have high CIBIL scores.
Here are the EMI and interest details for Rs 10 lakh personal loan taken for 5 years for different interest rates:
- At a personal loan interest rate of 10%, your monthly EMI will be Rs 21,247 per month and you will pay Rs 2.75 lakh in total interest over the loan tenure.
- At a personal loan interest rate of 12%, your monthly EMI will be Rs 22,244 per month and you will pay Rs 3.35 lakh in total interest over the loan tenure.
- At a personal loan interest rate of 14%, your monthly EMI will be Rs 23,268 per month and you will pay Rs 3.96 lakh in total interest over the loan tenure.
- At a personal loan interest rate of 16%, your monthly EMI will be Rs 24,318 per month and you will pay Rs 4.59 lakh in total interest over the loan tenure.
- At a personal loan interest rate of 18%, your monthly EMI will be Rs 25,393 per month and you will pay Rs 5.23 lakh in total interest over the loan tenure.
- At a personal loan interest rate of 20%, your monthly EMI will be Rs 26,494 per month and you will pay Rs 5.90 lakh in total interest over the loan tenure.
Note – You can check this using a personal loan EMI calculator that is available online.
As you can see, even though the increase in personal loan interest rates increases the EMIs by just a few thousand Rupees every month, the total interest paid increases a lot more and can set you back by a lot of money! Do read the difference between Low EMI Vs High EMI.
So it’s very important to keep your CIBIL score high. A low CIBIL score puts you into the category of high-risk borrowers. So not only does a low CIBIL score lower your chances of getting a personal loan but also increases the interest rate for your personal loans, if you qualify for one. And you don’t want that. And if you are looking at getting a personal loan quickly, then you really need a good credit score.
By the way, the RBI has clearly defined what exactly is a personal loan. You can read about it here in this note on RBI’s website about Harmonization of Banking Statistics here.
Moreover, a personal loan in 5 minutes is only possible if you have an excellent CIBIL score, a high income, low or zero debt and a very good relationship with your bank or lender. In such cases, banks offer pre-approved loans that can be obtained in 5 minutes. In all other cases, providing you have all the required documents and fit the required eligibility criteria, your personal loan approval may take between 1-2 working days.
I leave you with one reminder. A loan is a loan no matter how low rates you get or how quickly you get it. After all, you have to repay back the principal you borrowed as well as the interest on the loan. So make sure not to borrow unnecessarily. Take a personal loan for the minimum amount you need, with an EMI that you can afford and of the shortest tenure possible so that you can comfortably pay the monthly EMIs without having to strain your budget.
So that was about getting personal loans quickly in India (2021) and how your CIBIL score decides whether you get it or not.