How Does CIBIL Score Affect Your Education Loan?
You may have often come across the term, ‘CIBIL Score’ in the education loan process. The terms and conditions of education loan lenders, both government, as well as private ones, often stress the importance of maintaining a good CIBIL score to their loan applicants. A low CIBIL score is cited to be one of the most common reasons for rejection of abroad education loans by banks as well as NBFCs. A lot of candidates fail to understand the importance of maintaining a good credit score because they are not aware of what it means. In this article, you will get to understand the entire concept of CIBIL score and how it plays an important role in the abroad education loan process.
What is CIBIL?
CIBIL basically refers to Credit Bureau of India Limited, an organization which keeps a track of all the financial transactions of individuals. These financial transactions include any loan taken by individuals, their credit card payment history, loan EMI payment schedules etc. An individual’s CIBIL score helps banks and other financial institutions determine their ability to repay any loan for which they may have applied. Most lenders, both government and private ones, always check a loan applicant’s CIBIL score before considering their education loan application.
How is a CIBIL score calculated?
The financial details of all individuals holding a PAN card or a savings account with any bank functioning in India are recorded by CIBIL from the moment their accounts are active. This also includes all credit card transactions and online cash transactions conducted by these individuals. The CIBIL score of individuals who do not hold a credit card or those who possess one but have never used it for any of their transactions is always shown to be in negative or their score will be indicated to be Zero. This is considered to be a very good factor by most banks when they take the loan applicants’ CIBIL score for any kind of loan.
CIBIL scores range from 300 to a maximum of 900. The higher the CIBIL score, the better your chances are of getting an education loan.
CIBIL Score in Education Loan
There are primarily two types of education loan in India. Secured education loans granted by all the major government banks and unsecured education loans provided by private financial organizations called NBFCs (Non Banking Finance Companies). The CIBIL score requirement of both types of lenders are different.
CIBIL Score requirement of government banks:
Government banks like the SBI, Bank of Baroda, Punjab National Bank, etc. provide secured education loans to loan applicants who have a CIBIL score of 650 and above. To get an abroad education loan from SBI which is one of the most prominent government banks functioning in India, it is mandatory for loan applicants as well as their co-applicants to have a CIBIL score of 650 and above.
CIBIL Score requirement of NBFCs:
One of the most prominent factors considered by NBFCs and private banks before approving any education loan application is an applicant and their co-applicants CIBIL score. Most of the NBFCs which function in India require loan applicants as well as their co-applicants to have a CIBIL score to be above 700.
The following CIBIL score limits are recommended for students who wish to borrow abroad education loans.
300-599: If your CIBIL score falls in this range then it is high time to analyse your financial records and pay attention to any critical issues that may be causing your CIBIL score to be this low. A CIBIL score below 600 is considered to be very bad by most financial institutions and hence, the chances of you getting an education loan become all the more less.
600 – 749: Individuals whose CIBIL score falls in this category can still get an education loan. However, you need to keep in mind that when it comes to getting an education loan, most banks and NBFCs are very particular about loan applicants fulfilling the CIBIL score criterion due to the huge percentage of education loans being declared as NPAs every year.
750 & above: Individuals having a CIBIL score of 750 and above will not face any difficulty in getting an abroad education loan as their scores indicate a healthy financial record. This CIBIL score is also helpful to lenders in determining the financial reliability of the particular individual and their co-applicant.
In order to know the CIBIL score requirements of the different education loan lenders and also to know whether your profile will be considered to be eligible for an education loan, do reach out to the financial team of WeMakeScholars for assistance regarding the same. Our financial officers have helped many candidates get an education loan despite the difficult nature of their profile and they will be able to do the same in your case too.
Also read about Education Loan Benefits: A Complete Study
What Are Some of The Major Financial Issues that Can Cause The Credit Score To Go Down?
For any student who wishes to study abroad and does not have the means to self-fund their entire education abroad or is not eligible for a fully-funded scholarship abroad, an education loan can be a huge relief. Hence, before venturing into the whole process, it is essential to consider come of the serious financial issues which will cause the CIBIL score to go down significantly. The following factors can contribute to the decrease in your CIBIL score. These reasons are also considered by banks and NBFCs to be serious financial offence and hence, they may reject your education loan application.
A History of bounced cheques: If the loan applicant or their co-applicant has had a history of issuing cheques that have bounced in the past, this event is recorded by CIBIL which in turn will be reflected in the CIBIL score.
A loan settlement: It has been observed that having a loan settlement in the past has been the cause of education loan rejection in the case a huge number of loan applicants, as well as their co-applicants.
For example, if you or your co-applicant had borrowed a loan of INR 20 Lakhs in the past for some purpose (it can be a home loan, an auto loan, etc.) and you were able to repay only a partial amount out of the entire INR 20 Lakhs in the entire loan repayment tenure. In such cases, most banks declare such loans to be an NPA (Non-performing asset) and this incident will be recorded as a loan settlement in the candidate’s financial records by the lending bank.
This will again be recorded by CIBIL and you or your co-applicant’s CIBIL score reduces. Now, even after this incident, if their CIBIL score improves, applicants with a loan settlement in the past will still be unable to secure an abroad education loan from their respective banks as it shows that there are chances of you being unable to repay this education loan within the stipulated loan tenure.
A loan write-off or a loan waive off: Again, this is applicable to individuals who had previously borrowed a loan for some purpose. A loan write-off basically refers to a lender forgiving the loan due to the applicant’s inability to repay the same. However, this is badly reflected on the CIBIL score and hence, this is one of the critical reasons for an individual’s CIBIL score to go down. Loan applicants whose loans have been written off by banks or any financial institutions will not be considered under any condition for an education loan to study in India or abroad. If you are still looking to secure an education loan despite this, then the previous loan has to be paid off entirely and candidates will be required to produce a NOC (No Objection Certificate) from their previous lender before availing an education loan.
Credit Card Payment Issues
This issue is considered to be relatively less critical as compared to the above-mentioned issues for a low CIBIL score in education loan. If your credit card bill had not been paid off in the right time for a long duration like a year or so, your credit score is likely to go down. A lot of government banks accept individuals who have provided concrete reasons for a lag in the payment of their credit card dues and hence, it may still be possible for you to get an education loan despite having a bad credit score due to this reason.
A lot of students who wish to borrow an education loan often fail to notice the fact that for most lenders in India, CIBIL score is an indicator of an individual’s ability to repay the loan. CIBIL score is an important aspect of all loan processes, especially an education loan for abroad. If your education loan application was rejected on the basis of a low CIBIL score, do get in touch with the WeMakeScholars financial team. Depending on the gravity of financial issues in you or your co-applicant’s profile, our financial officers will try their level best to justify this error, thus enabling you to get an education loan and fund your dreams of studying abroad.
Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it is free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others