Do you know what happens when you apply for loans at banks or financial institutions? The lending institution accesses your CIBIL score before sanctioning the loan amount. Most lending bodies are now connected with CIBIL. Lending bodies use the CIBIL score to screen and rank loan applicants. CIBIL score is trusted by most banks to ensure the loan servicing capacity of borrowers. Applicants with high CIBIL score get priority by the lending institution over other applicants. Lending bodies reject loan applications with CIBIL scores lower than the accepted cut off.
The timely availability of loans is a major determinant of business, professional, or personal success. Proper use of short-term capital has rewards for the long term.
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CIBIL score encapsulates the entire loan servicing behavior of a borrower in a three-digit number over a period. The detailed CIBIL report data after going through a pre-set pattern of analytics is used for generating the CIBIL score. If the borrower has been servicing loans on time, then loan servicing activities get recorded through linked Pan/business accounts. Timely servicing of loans shows as high CIBIL score, while poor loan servicing shows as low CIBIL score.
CIBIL score comprises of three digits ranging from 300 to 900. A zero CIBIL score implies no credit history. A zero-credit score cannot be used to assess the loan servicing capacity of a borrower as it is a neutral score.
CIBIL scores above 650 are considered good. The higher the CIBIL score (nearer to 900), the better are the borrowing prospects.
CIBIL scores below 300 mark are not considered good and mostly do not clear the cut-off. To get attractive loan offers, the borrower should duly service and amortize previous loans at earliest.
CIBIL score is used by most banks, financial institutions, lending institutions, and other lending bodies while approving loan amounts. A CIBIL score makes it easy for the lending institution to make quick decisions regarding the disbursal of loans. The lending body is saved excessive paperwork and documentation due to linkage with CIBIL. Hence, the CIBIL score plays an important role in loan sanction and the amount, terms, and other loan features.
Short term loans can be categorized under several heads. The tenure of short-term loans ranges from a few months up to 5 years. The impact of loan servicing of short-term loans on CIBIL score can be realized within a few months.
| Types of short-term loan | Description | Tenure | CIBIL score impact |
| Business loan | Working capital loan, farm loan, agriculture loan, raw materials loan, investment in asset loan, investment in technology loan, etc. | 3 months to 5 years | From 3 months onwards |
| Professional loan | Loan for training, upskilling, improvement of facilities, investment in assets | 1 year to 5 years | Within one year |
| Personal loans | Study loans, home improvement loans, vehicle loans, travel loans | 1 year to 5 years | By one year |
| Credit cards | Based on the credit card limit | EMI conversion/monthly full payment option | From repayment month |
Short term loans have varied tenures, interest rates, purposes, and repayment schedules. Short term loans can be secured and unsecured. CIBIL score plays an important role not only in getting a short-term loan; a high CIBIL score can fetch a loan product with better feature options.
Secured short term loans are loans with tenure for less than 5 years. Secured short term loans are granted against collateral backup. Some banks or lending institutions may ask for collateral and or guarantor back up. Applicant having low CIBIL scores, or no credit history can raise a request for secure short-term loans. Since the lending body has security assurance, the loan may be granted even against low CIBIL scores.
Unsecured short-term loans do not require collateral or guarantor backup. The tenure of unsecured loans can range from 6 months to 5 years. A high CIBIL score is required to avail unsecured short-term loans on easy terms and conditions.
Interest rates of short-term loans can vary from 7% to 15% p.a. Very short-term loans can have higher interest rates. Interest rates can also vary as per the lending body, short term loan schemes, purpose of loan, priority sector/non-priority sector, and other parameters.
Short term loans can have a monthly EMI repayment schedule for up to 5 years. Instead of EMI, the repayment schedule can be monthly interest payment and lump-sum pay off in parts as per the borrower’s preference.
Improvement in the CIBIL score considerably improves the borrowing prospects of applicants. If a loan has been disapproved earlier, the applicant can reapply based on the latest CIBIL scores. A borrower with no credit history can start with short term loan services to build up credit history within 3 months. Short term loans can have a repayment period ranging from 3 months to not more than 5 years. The borrower can request with CIBIL for review of CIBIL scores at least after 3 months of duly servicing short term loans.
Benefits of improved CIBIL score can be:
CIBIL score is issued by the Credit Information Bureau (India) Limited. CIBIL collects all information regarding loan servicing of borrowers for loan products like credit cards, short term loans, and long-term loans. Based on the collected information, CIBIL generates reports and scores. The report and score can be accessed by lending bodies linked to CIBIL. If required borrower may also request CIBIL to issue a CIBIL score. CIBIL score generation application request can be submitted online through a four-step process:
The CIBIL score is mailed to the registered email ID of the applicant.
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