What Is The Best Credit Score To Get A Personal Loan At The Lowest Interest Rate?

When seeking a personal loan, one of the key factors to consider is your credit score. Usually, a credit score of 700 or higher is seen as excellent and can greatly enhance your chances of obtaining a loan with the best interest rates. Borrowers with scores in this range are usually regarded as low-risk, which makes them more appealing to lenders.

Amit, a 32-year-old software engineer from Mumbai, dreamed of starting his online tech store. To fund it, he needed a personal loan at the lowest interest rate. 

As he navigated the loan process—checking his eligibility, submitting applications, and comparing offers—he understood just how important his credit score was. 

Amit's experience is a great reference for everybody who wants to get personal credit smoothly. Let's explore his experience to understand the key stages.

WHAT IS A CREDIT SCORE?

To Amit, a credit score was not just a number but a key to realising financial opportunities.

It is a three-digit figure that indicates how trustworthy you are when it comes to borrowing money. In India, the CIBIL Score is the most frequently used credit score, ranging from 300 to 900. This score can be calculated using different factors: how much credit you use, your payment history, and also the duration of your credit history.

In addition to CIBIL, other credit bureaus in India are Experian, Equifax, and CRIF High Mark, but CIBIL remains the most well-known.

Suppose Amit needed a ₹5,00,000 loan for his tech store. He had a credit score of 780 and got a 10% interest rate, in which he will be paying ₹1.37 lakh in interest over 5 years.

If his score was 650, the interest rate would have been 15%, raising his interest to ₹2.14 lakh, costing him ₹77,000 more.

Because Amit had always paid his credit card bills promptly and managed to control his debts, his score of 780 declared him to be a low-risk borrower. Accordingly, he received the lowest interest rate on his loan, thus rightly proving this great credit score made borrowing pocket-friendly.

WHY DOES A CREDIT SCORE MATTER TO A PERSONAL LOAN IN INDIA?

It is essential for personal loan approval, interest rates, and repayment costs in India, and this was especially important for Amit when he sought a loan of ₹5 lakh.

CHANCES OF LOAN APPROVAL

• Amit's credit score was 780; hence, it was easy for him to obtain the loan. 
  
  
• Had it been less than 650, he would have been staring down the barrel of a very real possibility that either his application would get disapproved or extra documentation would be needed.

INTEREST RATE IMPACT

• With a credit score of 780, Amit got a loan for a 10% interest rate, which resulted in an interest outgo of ₹1.37 lakh over 5 years. 
  
  
• Had his score been lower back then, i.e., 650, the interest rate would have shot up to 15%, and the total interest would have changed to ₹2.14 lakh. Thus, Amit saved ₹77,000 just because of his high credit score!

LOAN AMOUNT ELIGIBILITY

• The top score rate gained by Amit allowed him to obtain the full ₹5 lakh loan amount he required.
  
  
• With a low score, Amit would have received only ₹3 lakh, or he might have needed to provide additional forms of security to the bank.

FASTER LOAN PROCESSING

• Amit received loan approval within 48 hours because of his perfect credit records at the bank. 
  
  
• The approval duration could increase to one week, and they might demand increased collateral from him if his credit score is lower.

BETTER NEGOTIATION POWER

• Amit successfully persuaded the bank to waive the processing fee and save him from paying interest on his loans.
  
  
• If his score was lower, he would have been charged extra processing fees and had to live with standard rates.

IMPACT OF CIBIL SCORE RANGES ON LOAN TERMS

With a range of 300 to 900, CIBIL scores in India can change, where the higher the score, the more favourable the loan terms will be. These are the changes in personal loan approvals and interest rates according to your CIBIL score:

HOW LENDERS ASSESS YOUR CREDITWORTHINESS

Lenders in India mainly rely on your CIBIL score, along with various other factors, to determine your creditworthiness when you seek a personal loan. Here’s how they evaluate it:

CIBIL SCORE

• It is a three-digit number that reflects your credit history.
  
  
• How It Impacts: A higher score indicates responsible borrowing, making you more attractive to lenders.

Amit’s 780 scores placed him in the excellent range (750-900), securing him the lowest interest rates (10%).

CREDIT HISTORY

• It is a record of your borrowing and repayment behaviour, including credit card payments, loan repayments, etc.
  
  
• How It Impacts: Lenders review your history to see if you’ve paid on time.
  
  
• Amit’s on-time payments (e.g., credit cards, previous loans) reassured lenders of his reliability.

CREDIT UTILIZATION RATIO

• What It Is: The percentage of your valuable credit that you’re using.
  
  
• Impact: A low ratio, usually 30 per cent or lower, suggests you’re not excessively dependent on credit.
  
  
• Amit maintained a 30% utilisation (i.e., spent ₹30,000 of ₹1 lakh), showing responsible usage.

STABLE INCOME AND EMPLOYMENT

• Lenders review your monthly income and job security to ensure that you can pay the loan back.
  
  
• How It Affects: Amit’s regular salary of ₹75,000 per month and track record of servicing loans allowed banks to relax.

DEBT-TO-INCOME RATIO (DTI)

• It is the ratio of your total monthly debt payments to your monthly income.
  
  
• Impact: A low DTI indicates that you are not overburdened by debt.
  
  
• Amit’s DTI was 25% (e.g., monthly debt repayment ₹18,750 vs. ₹75,000 income), showing he wasn’t overburdened by debt.

LOAN APPLICATION DETAILS

• Lenders check the loan amount you have requested and your reason for borrowing.
  
  
• Impact: A reasonable loan request (like Amit’s ₹5 lakh for his business) paired with a solid plan increases the likelihood of approval.

HOW TO MAKE YOUR CIBIL SCORE BETTER FOR FAVOURABLE LOAN TERMS

COMMON MISTAKES THAT LOWER YOUR CIBIL SCORE

To maintain a healthy credit score, these errors must be avoided:

• Missing payments or making late EMI payments.
• Maxing out credit cards.
• Applying for multiple loans in a short time.
• Closing old credit accounts unnecessarily.

FINAL THOUGHTS

The process of obtaining personal loans heavily depends on a strong credit score since it directly affects both approval chances and interest rates, as well as what terms will be offered. The approval process, interest rates, and financing amount all improve drastically for applicants whose CIBIL score reaches or exceeds 700 points. 

Amit's maintenance of a good credit score helped him save significant interest costs and gain access to easier loan processing while improving his financial decision-making flexibility.

Therefore, people who obtain lower credit scores will face more stringent borrowing conditions alongside higher interest rates and probable requirements for collateral and stronger documentation.

FAQs

What credit score is needed for the best personal loan interest rates in India?

To obtain the most favourable interest rates, a credit score of 700 or higher is suggested, as it shows a lower risk for lenders.

How does a high CIBIL score benefit me when applying for a personal loan?

A higher CIBIL score can result in lower interest rates, larger loan amounts, and quicker approval times, ultimately helping you save on interest.

Can I be eligible for a personal loan if my CIBIL score is less than 600?

While it’s challenging, it is possible. However, a score below 600 may lead to higher interest rates, stricter loan terms, or even loan rejections in some cases.

How does the range of the CIBIL score affect the kind of loan that I can avail of?

Scores of more than 750 result in low-interest loans and guaranteed approval, while scores of less than 650 can restrict your loan amount and cause higher interest rates or denial.

How soon can I expect a change in my CIBIL score after clearing the dues?

It may take 1-2 months for your CIBIL score to show substantial improvement following the settlement of debts, depending upon the amendment in your credit report.

What is my credit report's role in availing the lowest personal loan interest rate?

Lenders use your credit history based on your report. A positive, clean report—representing timely payments—may raise your prospects for availing the lowest interest rates.

Can I qualify for a personal loan with a credit score under 650 if I have a steady income?

Having a steady income can work in your favour, but a credit score under 650 could still lead to higher interest or a smaller loan amount, though it may not necessarily impact qualification.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?