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The loan repayment history is one of the ways to assess an applicant - whether he/she is eligible for a personal loan. However, the effects of repayment history on personal loan eligibility depends on the type of default.There are two types of default an individual can make:
- Minor Default:A minor default is when the individual does not make or misses the payment for less than 90 days. The effect of a minor default on a credit score is temporary.
- Major Default:A major default is when the payment is not made for more than 90 days. This causes a permanent blot on your credit report and causes the account to fall under the non-performing asset category.
Now, that we know the types of default, here is how repayment history affect the eligibility of a personal loan.
- Impacts your credit score: All lenders check your credit score before approving a personal loan. While credit score is not the sole factor for personal loan approval, it is one of the most critical elements to determine whether the individual is eligible or not. The repayment history has the maximum role in calculating your credit score, and therefore a good loan repayment history will reflect in your credit score.
- Indicator of past financial behaviour: To assess the intent of a borrower, lenders generally consider the past financial behaviour; whether he/she made timely payments, defaulted/missed any payments, etc. Good loan repayment history is highly sought-after lenders for approving a personal loan.
- Lower interest rates: A good repayment history can not only improve personal loan eligibility but also make it possible for individuals for lower interest rates. Although lenders follow interest rates linked to MCLR and charge a premium, they are willing to offer a low-interest personal loan to individuals with a good loan repayment history .
- Pre-approved offers: Many financial institutions offer pre-approved offers to individuals based on their excellent loan repayment history. A pre-approved offer helps the individual to receive funds directly into the bank.
- Longer repayment tenures: As mentioned above, repayment history plays the most crucial role in determining the credit score of an individual. A good loan repayment history reflects a good credit score, thereby giving a possibility to longer the repayment tenures of your personal loan.
The repayment history of an individual cannot be built overnight and needs to be made over the months through timely payments and closure of personal loan. With proper diligence, one can build a good loan repayment history and improve their personal loan eligibility.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
