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Impact of CIBIL on interest rates, disbursal TAT & Loan Amount

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  • By:CANAM Group
  • Updated On:Jan 08,2024 04:24 PM IST

Education Loan is one of the tools used by international students to fund their foreign education. The CIBIL score is one of the factors that affect education loans. Read this article to know how a high CIBIL score can get students a higher education loan with a lower interest rate and how students can improve their CIBIL score to get a study loan at an affordable rate.

impact of CIBIL score on interest rates.webpStudying abroad requires a lot of money, and therefore, many students often take study loans to fund their education. Taking an education loan is not easy, as one must consider various factors like interest rate, loan amount, loan duration, etc. One of the biggest factors that affect a person's borrowing power is the CIBIL score.

Here’s a guide for aspiring students to understand the benefits of a high CIBIL score, how to improve CIBIL score, how banks determine interest rates, interest rates of different banks, how the CIBIL score impact interest rate, amount of loan and disbursal TAT.

Reasons to Study Abroad

In recent years more students than ever have gone to study abroad because of the benefits it gives. It is not difficult to understand why one should study in a foreign country at least once in their lifetime. Still, to answer the question of why to study abroad, here is a list of reasons to study abroad.

Reasons to study abroadDescription
Life ExperienceFor many international students, this could be one of the longest distances they would travel, and for many international students, it would be their first time. Students can take this opportunity with both hands and make the most of it by learning about culture and traditions, making new friends, learning new languages, and visiting the country's best locations.
More Career OpportunitiesStudents can find ample job opportunities in various fields after studying at a top university in a popular destination like the USA, UK or Canada. This is because they get to learn in-demand skills.
New Cultural ExperienceWhile studying abroad, students will be able to experience the culture and traditions of that country. They will get the chance to explore fresh food and places. For example, students can go to the beaches while studying in Australia.
Personal DevelopmentStudying in a foreign country makes students mature as they care for their food, clothes and many other things. They become more responsible as they have to live on their own. The new place might initially overwhelm them, but later, they get used to it. 
World-Class EducationStudying in a foreign country like the USA, UK, Canada, and Australia allows students to study at top universities in the world. The faculties of these universities teach real-life skills to students and make them job-ready after graduation. 

Benefits of a High CIBIL Score

CIBIL score is one of the factors that help lenders get an idea of a person’s creditworthiness based on their past credit behaviour. A good CIBIL score means a lower degree of risk for lenders. A high credit score gives the following benefits to the person:

benefits of cibil score.webp

How to improve your CIBIL score?

After knowing about the advantages of a high CIBIL score, our readers might also be thinking of increasing their CIBIL score. Firstly, it’s important that there is no technique by which one can increase their CIBIL score in a single day. There are various measures that one must follow regularly to increase one's CIBIL score. Some of the measures are given as below.

Have a mix bag of loans
If a borrower takes too many unsecured loans then the bank sees it as negative and may even decline the loans. Therefore, one must have both unsecured loans and secured loans. 
Monitor CIBIL Score Regularly
All credit rating agencies provide annual free credit report by looking at which students can check for any errors. They will get to know if they have forgotten any loan payment. One can make sure that they have a good credit history. 
Never withdraw cash with credit cardMany times students might think that withdrawing cash with credit card is same as debit card but it’s not true. Students might be charge a higher interest rate for the money withdrawn through credit card.
Timely Repayment33% of the credit score comes from the payment history hence one must make the timely payments. One can also download apps that remind them of the payment. Another way to avoid delay payments are to set up automatic payments through which the payment will automatically be deducted from the account. In this method you just have to make sure that there is minimum balance. 

How are interest rates determined by banks?

Banks can charge interest rate according to the guidelines of the Reserve Bank of India, the rate of interest charged by different loan providers vary depending on various factors. The factors which affect the interest rate of education loan are as follows:

CIBIL ScoreCIBIL score is the primary factor considered when giving loans to borrowers. A high CIBIL score lets the borrower get an education loan at a lower interest rate. 
Repayment TenureWhile it doesn’t apply to all the banks some loan providers may charge interest rates if it requires a long duration. 
Relationship with the bankBanks or financial institutions may offer lower interest rates for existing customers. 
Type of LoanThe interest rate also varies according to the type of loan the borrower is availing. Further interest rates also vary whether the loan is secured or unsecured.

Interest Rates of Different Banks for Study Abroad Education Loan 

There are various banks which provide education loans in India to study abroad at a nominal rate of interest. Below is a table which states three banks Yes Bank, HDFC Credila Bank and ICICI Bank with their interest rate, loan amount and repayment tenure. After comparing all three banks students can choose the bank which is most suitable for them. 

Note: Canam doesn’t provide loans. It can only assist in getting an education loan at a lower interest rate. 

Name of the BankInterest Rate OfferedMaximum Loan AmountRepayment Tenure
ICICI Bank9.50% to 14.75%Rs. 2 Crore• Up to 10/12 years for Under Graduate
• Up to 12/14 years for Post Graduate
HDFC Credila Bank13.80%No Upper Limit12 years
Axis Bank• 15.20 Upto 4 Lakhs
• 14.70 for loans between 4 lakhs and 7.5 lakhs
• 13.70 for loans greater than 7.5 lakhs
No Upper Limit15 years for unsecured loans

How does the CIBIL Score impact interest rate?

While taking an education loan students need to understand that they will have to pay it back to the bank with interest. The borrowed amount comprises two parts: the principal amount and the interest amount. The principal amount remains the same but the interest amount may vary depending on the CIBIL score. A cibil score shows the creditworthiness of the borrower. The Credit Information Bureau India Limited (CIBIL) score is a numerical representation of credit history and financial behavior of users. 

CIBIL score is used by Lenders as a risk assessment tool. A higher score indicates responsible credit management and enhances the chances of students securing a loan or credit card at a lower interest rate. Conversely, a lower score may result in higher interest rates or even rejection of the application. Regularly monitoring and maintaining a healthy CIBIL score is crucial for securing better financial terms. 

How does CIBIL Score impact the amount of loan?

A Credit Information Bureau (CIBIL) score is a crucial factor influencing the amount of loan students can secure. It is a numerical representation of the creditworthiness, ranging from 300 to 900. Lenders use this score to assess the risk associated with lending money to students.

A higher CIBIL score implies responsible financial behavior and increases the likelihood of loan approval. It signifies that borrowers have a history of timely repayments and a lower credit risk, making them a favorable candidate for lenders. Consequently, individuals with high CIBIL scores often qualify for larger loan amounts and enjoy more favorable interest rates. A high CIBIL score allows borrowers to get a larger loan amount because it shows that the borrower will be able to repay the amount loan on time. 

On the contrary, a lower CIBIL score may hinder students loan prospects. Lenders may perceive them as a higher risk due to a history of missed payments or excessive debt. This could result in loan rejections or approvals for smaller amounts, accompanied by higher interest rates to compensate for the perceived risk. 

What impact does CIBIL have on disbursal TAT?

It's not that the CIBIL score only impacts the interest rate of a loan but it also affects the turnaround time of a loan also known as TAT. Credit Score shows the creditworthiness of a borrower and it tells the bank how reliable the borrower is to lend the funds. Below are the factors which can impact the education loan approval process:

Speedy ApprovalA high CIBIL score indicates the creditworthiness of the borrower, ensuring trust and speedy approval of loans.
Lower Interest RatesBorrowers with high CIBIL scores can get loans at much lower interest rates.
Flexible Repayment OptionsA good CIBIL score allows the borrower get flexible terms of repayment schedule and loan duration.
Repayment Ability IndicatorBanks use the CIBIL score to determine the repayment ability of the borrowers.

Conclusion


Education loan helps a student to study their dream program in a country like the USA, UK, Canada and Australia. An applicant needs to consider various factors before applying for a study loan like interest rate, loan amount, loan duration etc. One of the factors that can work in the favor of students is the CIBIL score. Students can use their or their parents' CIBIL score to get higher education loans with a lower interest rate. They can also contact canam experts to get student loans for abroad studies at affordable interest rates.

FAQ

An applicant with a high CIBIL score of 750 or above can get the education loan at a lower rate of interest. 
A CIBIL score of 550 or lower is considered a bad credit score and makes it difficult for lenders to approve your loans. 
The factors affecting the interest rates for education loans for studying abroad are the academic record of a student, type of course, collateral provided and credit history of the borrower (CIBIL score).
Credit bureaus use different factors like payment history, credit utilization, credit mix, and recent credit inquiries to calculate CIBIL scores.
A student loan usually requires a credit score of 670.

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