Minimum CIBIL Score Required for Loan Against Property

Whenever you apply for a new loan or credit, you have to meet specific eligibility criteria set by the lending institution. While the loan approval and terms depend on many factors such as age and income, a CIBIL score is one of the most important criterion for eligibility. 

In this article, we will understand the importance of the CIBIL score, the minimum CIBIL score for a Loan Against Property (LAP), and whether it is possible to get a Loan Against Property without a CIBIL score. 

What a Loan Against Property (LAP) is and why CIBIL score matters

LAP is a type of secured loan where borrowers pledge their property (residential or commercial) as collateral to avail funds from a financial institution. The property acts as security for the lender in case the borrower defaults on the loan repayment. Borrowers get access to substantial funds, usually at lower interest rates compared to unsecured loans, due to the reduced risk for the lender. This is a type of secured loan where borrowers pledge their property (residential or commercial) as collateral to avail funds from a financial institution. The property acts as security for the lender in case the borrower defaults on the loan repayment. Borrowers get access to substantial funds, usually at lower interest rates compared to unsecured loans, due to the reduced risk for the lender.

A CIBIL score is a reflection of your creditworthiness, it essentially shows how well you can manage your debts. Lenders often refer to the CIBIL score to assess the risk associated with lending to a borrower and have a minimum CIBIL score requirement for availing a LAP.  

What is the CIBIL score?

The CIBIL score is a 3-digit numerical summary of your credit history. It is generated by TransUnion CIBIL, one of the leading credit bureaus in India. 

It typically ranges from 300 to 900, with a higher score indicating a stronger credit profile and a lower risk for lenders.

The CIBIL score is calculated based on various factors, including your repayment history, credit utilisation ratio (how much credit you use compared to the available limit), length of credit history, types of credit used, and recent credit inquiries.  

Importance of CIBIL score in determining loan eligibility

The CIBIL score plays a pivotal role in determining loan eligibility as it shows how likely a borrower is to repay a loan based on their past financial behavior. 

A higher CIBIL score indicates responsible financial habits, such as timely repayment of loans and credit card bills. This increases the likelihood of loan approval with favourable terms such as lower interest rates, depending on how well you fit the overall eligibility criteria. Conversely, a low CIBIL score may result in loan rejection or approval with stricter terms, as it suggests a higher risk for the lender.

Therefore, maintaining a good CIBIL score is essential for securing loans on favorable terms.

Factors influencing CIBIL score for Loan Against Property

• Payment history: A history of timely payments on existing loans or credit reflects positively on your CIBIL score for obtaining a LAP. Late payments, defaults, or instances of loan settlement negatively impact the CIBIL score.
• Credit utilisation ratio: This refers to the percentage of available credit that a borrower has used. A higher ratio can indicate financial strain and may lower the CIBIL score. Keeping this ratio below 30% is advisable for a LAP application. 
• Outstanding debts: High levels of debt compared to the monthly income can raise concerns about repayment capacity and may affect the CIBIL score negatively.
• Credit mix: A balanced mix of different credit types such as secured loans (home loans) and unsecured loans (personal loans), can positively impact your CIBIL score. If managed responsibly, they show your ability to manage various credit products.
• Multiple credit inquiries: Each time you apply for new credit generates a hard inquiry on the credit report, which can temporarily lower the CIBIL score. Multiple inquiries within a short period may suggest financial distress and raise a red flag for lenders.

Minimum CIBIL score required for Loan Against Property

The required minimum CIBIL score for a Loan Against Property can vary among lenders. Generally, a CIBIL score of at least 700 is required for LAP application. Individuals with lower credit scores may face challenges in securing approval or receive loans with higher interest rates and stricter repayment terms.

Is a CIBIL score required for taking out a Loan Against Property?

Yes, you must have a CIBIL score to apply for a Loan Against Property. If you have a score lower than 700, it is recommended to try to improve the CIBIL score before the loan application.  

How does a bad CIBIL score impact a Loan Against Property?

Access to a Loan Against Property with a low CIBIL score becomes severely limited, making it a challenge for individuals to leverage their property for financial needs.

Borrowers with a bad or low CIBIL score may face rejection of their LAP application or may be offered the loan at higher interest rates. Additionally, they might receive lower loan amounts or be subjected to stricter terms and conditions. Some lenders may consider a guarantor with a high credit score to grant loan approvals.

How to check your CIBIL score online?

CIBIL lets you check your score for free once a year. Here’s how you can do so:

• Visit the official CIBIL website.
• Look for the option ‘Get Your Free CIBIL Score’.
• Enter details such as your name and email address, and set a password.
• A One-Time Password (OTP) will likely be sent to your registered mobile number.
• After verification, you will be able to access your CIBIL score and a detailed credit report.

Several financial institutions also offer the service of checking CIBIL scores for free through their website or mobile platforms. You may have to register and follow similar instructions to get the CIBIL score.

How to improve your CIBIL score?

Improving your CIBIL score is crucial for better access to credit and favourable loan terms. Let us take a look at a few ways that could help you do so:

• Timely payment of credit card bills and loan EMIs demonstrates responsible financial behavior and positively impacts your score.
• Maintain a healthy credit utilisation ratio of 30% or below to improve your CIBIL score over time.
• If you have outstanding debts, prioritise paying them off. This will not only improve your credit score but also free up your credit limit.
• Don't apply for too many new credit cards or loans in a short period.
• Regularly review your CIBIL report and dispute any errors you find as inaccuracies can negatively impact your score.

Conclusion

Understanding your CIBIL score and maintaining a healthy score is crucial for securing a Loan Against Property with favorable terms. A score of at least 700 is generally recommended. However, taking steps to improve your credit history before application can increase your chances of approval.

SMFG India Credit requires a minimum CIBIL score of 700 for LAP applications. Depending on your eligibility and factors such as the value of the property, you can get loan amounts of up to 70%* of the property value at attractive interest rates. Use our Loan-to-Value calculator to estimate how much loan amount you may get and apply online.