Bank of Baroda, Syndicate Bank and Union Bank of India have started sorting out their prime and sub-prime customers. In the new lending system, they will charge different interest rates from them. These banks are sorting them on the basis of credit score. Bank of Baroda will charge one percent less interest from customers with a credit score above 760 as compared to customers with credit score of 675-724.
Lower credit score, more interest on home loan
The bank will charge 9.10 percent interest on home loans from Bank of Baroda customers with credit score between 675 and 724, while customers with credit score above 760 will be charged 8.1 percent. This can lead to negotiation of interest rates on behalf of customers with good credit scores.
A good credit score will benefit throughout the loan term
The Reserve Bank of India (RBI) has given banks the freedom to fix interest based on the risk associated with the loan. In this, they will be able to charge a percentage of more than the external benchmark on the loan. It is believed that this will increase the role of credit score in loan interest rates. Banks have adopted the external benchmark for new floating rate retail loans from 1 October. The Reserve Bank made it mandatory for banks in September this year in an order. In such a situation, not only will the credit score of the borrower become important at the time of loan approval, but it will be beneficial during the entire duration of the loan.
Understand the mathematics of profit
For example, if the interest rate on a home loan of 50 lakh is 9.1 percent per annum, then a reduction of one percent will save the Equated Monthly Installment (EMI) of Rs 3,380 and reduce the interest by Rs 10 lakh over a period of 25 years. Virender Sethi, head of mortgage and other retail assets at Bank of Baroda, said, "If the borrower improves his credit score after one year, he can reduce the interest rate. At the same time, if his credit score falls below 760 after taking a loan, then the interest rate will increase for him.
Late payment will spoil credit score
Syndicate Bank has also decided to increase the credit risk premium if the credit score falls by 50 points. The bank's MD and CEO Mrityunjay Mohapatra said, "If the borrower delays EMI payments thrice in the past one year by more than 30 days, it can also damage his credit profile."
CIBIL credit score between 300 and 900
Union Bank will charge 0.10 percent more interest from customers with credit score less than 700. In India, CIBIL, Equifax, Experian and CRIF determine the credit scores of highmark people. This shows the ability of any person to take loan. Credit score is prepared on the basis of data from banks and borrowers' repair and utility bill payment track record. Cibil gives a credit score between 300 and 900. In this, a score of 900 means the highest ability to take a loan, while a score of 300 means that the person concerned does not have the ability to take a loan.
