Home Loan Mistake That Can Cost You Rs. 25 Lakh Extra: Fix This Now

High interest rates on home loans due to a low CIBIL score can increase your repayment by lakhs. Learn how to avoid paying more.

Why Your CIBIL Score Affects Your Home Loan Interest Rate

Your CIBIL score plays a major role in determining the interest rate you receive on home loans. A good score (750 and above) ensures lower interest rates, whereas a poor score can result in significantly higher rates. Even a small difference in interest rates can lead to a huge difference in the total amount you end up paying over the loan term.

When applying for a home loan of Rs. 50 lakh for a tenure of 25 years, the interest you pay could vary depending on your CIBIL score. A lower score can cost you an additional Rs. 25 lakh or more. Let’s understand how much more you might pay with a bad CIBIL score.

Home Loan EMI Comparison: 8.35% vs 10.75% Interest Rate

Example 1: Interest Rate of 8.35% (Good CIBIL Score)

If your CIBIL score is 750 or above, banks may offer you a loan at an interest rate of 8.35%. For a home loan of Rs. 50 lakh over 25 years:

In this case, you would pay Rs. 69.27 lakh as interest, and the total repayment over 25 years would be Rs. 1.19 crore.

Example 2: Interest Rate of 10.75% (Poor CIBIL Score)

With a poor CIBIL score, your interest rate may rise to 10.75%. Here’s how much you’ll pay:

At this higher interest rate, you end up paying Rs. 94.31 lakh as interest, and the total repayment amount rises to Rs. 1.44 crore.

Impact of Poor CIBIL Score: Rs. 25 Lakh Extra

As seen in the examples above, due to the increase in interest rate from 8.35% to 10.75%, you’ll have to pay an additional Rs. 25 lakh in interest alone over the loan tenure. This can put a significant financial burden on you.

How to Improve Your CIBIL Score and Get Lower Interest Rates

To avoid paying such high interest on your home loan, it’s important to maintain a healthy CIBIL score. Here are four simple tips to keep your CIBIL score strong:

1. Pay Credit Card Bills and EMIs on Time
   Always ensure timely payment of your credit card dues and loan EMIs. Missing payments or delaying them negatively impacts your CIBIL score.
2. Limit Loan Inquiries and Credit Card Applications
   Applying for too many loans or credit cards in a short period can damage your score. Avoid making multiple inquiries for loans or credit cards.
3. Reduce Credit Card Usage
   Try not to max out your credit card. Using more than 30% of your credit limit can lower your CIBIL score. Keep your credit card usage minimal and pay off outstanding balances regularly.
4. Avoid Loan Settlements
   Settling loans instead of paying them in full sends a negative signal to banks. It indicates that you were unable to repay the loan as per the terms, which can significantly harm your CIBIL score.

By improving your CIBIL score, you can not only increase your chances of getting a loan but also secure a lower interest rate, saving you lakhs in the long run.