Rate of interest happens to be the most crucial factor that needs to be considered while taking a new loan. One wishes for the lowest interest rate, every time they apply for a loan. To ensure a low interest rate on a loan or related product, the borrower needs to have an impressive CIBIL score.
A loan applicant wishes for a low interest rate as that ensures that he has a lower amount getting spent every month as monthly instalment. As a loan comprises the principal and the interest, when the rate of interest is higher, the EMI is going to be more, as a higher amount is spent in paying the interest.
There are chances that the lending institution will offer you a loan at a low interest rate, if your credit score is 750 or above. If the score is quite lower than 750, you lose all bargaining power and the bank perceives you as a risk, since the credit score is a clear reflection of your creditworthiness.
A poor CIBIL score reflects your unreliable credit behaviour. The bank can list you as a "risk" as it is unsure whether you will pay back your loan. They can totally reject your loan application or offer a loan at an extremely high rate of interest in order to cover the risk.
Before you make a loan application, it is better to check your CIBIL score and CIBIL report once. The report will show you the reasons that have led to the poor CIBIL score, thus enabling you to consciously work towards bettering the score. If you wish to avoid a high interest rate on a loan, it is recommended to give yourself some time to improve your credit score thus delaying your decision of taking a loan.
The first and foremost thing that you must do is repay all the outstanding credit as soon as possible. Check your credit report 6 months before making a loan application and ensure that your credit score is a decent one.