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Impact of CIBIL Score on Consumer Durable Loans

As the festive season approaches, we come across increasing number of ads for consumer electronics. Retailers and brands initiate several types of strategies to lure customers. The result is that consumers tend to wait for this special occasion to purchase essential electronics, such as ACs, TVs, refrigerators and other such home appliances.

The season also spells immense profit for the companies and retailers as consumers almost always opt to use a financing system, rather than paying cash straightup, to make these purchases. This means that banks and finance providers are also in search of new ways to attract consumers towards their particular finance product.

Although today credit cards are mostly used to make purchase of consumer electronics, there are other avenues too which can prove to be more beneficial to the consumer, retailer and the banker/financier alike.

Consumer durable loan is one such amazing finance option to buy electronic items currently.

A consumer durable loan is a finance scheme which numerous financing companies and banks provide to customers to pay for purchase of consumer durable items. The loan is provided to buy consumer electronic products which come with a warranty attached. A consumer durable loan can be used to buy TV, AC, refrigerator, washing machine, microwave oven, computers, laptops, smartphones, kitchen appliances, furniture and any other such warranty-based consumer product.

Impact of CIBIL Score on Consumer Durable Loans

Your CIBIL score denotes your ranking (feasibility) as a borrower to potential lenders (banks/finance institutes). This is a ranking system which allows lenders to know your past financial performance, as a borrower repaying loans and credit card bills, which helps them to determine your eligibility for a loan.

Consumer durable loans are classified as unsecured loans and do not require you to allocate any form of your asset as security against repayment of loans, in contrast to secured loans. Thus, the lender needs to check your past performance as a borrower. The lender would need to see the frequency of your borrowings and the repayments as well. As the immense data from your CIR is consolidated into a simple ranking system using CIBIL score, it becomes immensely effective for lender to decide if you are a safe aspect to loan or a consumer durable loan.

Although the lender also needs to check your annual income, your repayment history and your CIBIL score are the main focus of their scrutiny.

Hence, it is highly advised to check your CIBIL score regularly. There are times when an error may result in lowering your CIBIL score. So, when regular checking brings this to your notice, you can immediately contact the CIBIL authority and have the error rectified promptly. This can save you the disappointment of having your consumer durable loan application being rejected.

In addition, adopting a balanced approach when it comes to borrowing helps. The frequency and numbers of unsecured loans and the number of credit cards under your name also determine your CIBIL score. Higher number of unsecured loans and credit cards result in lowering your CIBIL score significantly. Although delayed payments adversely affect your CIBIL score, non-payments lower your CIBIL ranking drastically.

Surprisingly, not using the credit card issued to you with sufficient frequency also impacts your CIBIL score, and your eligibility for a consumer durable loan.

In addition, having multiple loans and no credit cards may also negatively affect your CIBIL score. So, to ensure that your consumer durable loan application is successfully approved, you need to take care of the following aspect of your finances:

  • CIBIL score
  • Multiple credit cards and loans
  • Delayed/NonPayments
  • Higher credit limit
  • No loans
  • No credit cards/Not using credit cards
  • Knowledge of updated CIR score card

What this means is that you simply need to make regular checks on your CIBIL score to ensure that it reflects your factual financial situation and is not lowered due to technical errors. You need to avoid possessing multiple credit cards and getting multiple loans, simultaneously. Next, always ensure that your loan and credit card bill payments are always prompt, complete and ontime. Also, maintain a credit limit which signifies your ability to repay loans/credit card debt. In addition, ensure that you are a frequent user of loans and credit card. This shows the lender that you are an active consumer and more viable as a candidate for an unsecured loan, such as the consumer durable loan. Last, but not the least, you also need to regularly keep updated with the current CIR. This report is an excellent and efficient way to determine your past financial performance, make amends to improve it, and eventually ensure that your CIBIL score is in the higher levels.

Things to know about Consumer Durable Loans

If you are new to consumer durable loans, then there are certain major aspects and factors that you need to know. These will help you to determine if you are eligible to successfully receive an unsecured loan such as the consumer durable loan and whether it will be a feasible decision at your end.

  • Rate of Interest : The cost of availing the loan is a major factor to consider before applying for a consumer durable loan. Currently, consumers have the option to choose between two types of loans – interest-laden loans and interest-free loans. As the name suggests, the interest-free loans are sans any additional payment, apart from the total loan capital. However, such loans are normally provided on only select consumer items and are not available to purchase any other electronic consumer product. On the other hand, the interest-laden loans have varying rates of interests, mainly depending on the specific bank or finance company’s terms and conditions to provide consumer durable loans. Today, unsecured loans have an interest rate varying anywhere between a considerably low 12% to a significantly high 22% as well. In addition to the interest, consumer durable loan providers also charge a processing fee of around 1% to 3% of the total loan amount. This aspect of consumer durable loans is aimed to ensure that the common man has access to electronic products and appliances, without having to strain their savings. Although you may consider using your credit card to buy such a product, this will result in your credit card being blocked for reaching its maximum credit limit for the month.
  • Numbers of Installments: Consumer durable loans are provided with freedom to choose the number of installments and the EMI rate for borrowers. Although the tenure of the loan also matters for this, you can easily manage your regular expenses without the loan making significant effect on your savings or CIR performance. Experts suggest that for higher loan amount, a longer tenure works best, and vice versa, to manage your finances efficiently. Also keep in mind that when you choose to get an interest-free consumer durable loan, you should also choose the maximum number of installments allowed, thus managing your finances better.
  • Processing Fee : Experts highly advise to check the processing fee prior to applying for consumer durable loans. Ensure that the processing fee remains constant throughout the tenure of the loan, for all the EMIs you have determined to repay the loan. Varying processing fee will likely affect your finances significantly.
  • Down-payment: Finance providers rarely give consumer durable loans that cover the complete cost of purchase of the consumer product. A partial amount out of the total cost of product needs to be paid up-front by the borrower to avail the consumer durable loan, and this is called the downpayment.

The specific downpayment amount will vary from lender to lender but is normally between 10% and 25% of the total price of the consumer product. To determine the most feasible amount to pay as downpayment for a product, experts advise borrowers to check their current budget and the number of EMIs they plan to pay.

Ideally, according to financial experts, a downpayment of 20% to 25% of the total loan amount is best-suited to balance your budget in the long run.

FAQs on Impact of CIBIL Score on Consumer Durable Loans

What is the tenure limit for consumer durable loans?

The limit of tenure for repayment of consumer durable loans varies from lender to lender. Normally, the tenure for repayment of consumer durable loans is anywhere between a minimum of 6 months to as much as 36 months.

What are the documents required to get consumer durable loan approved?

For consumer durable loans under a specific limit (as determined by individual lender terms and conditions), the documents required to have a successful approved are:

  • AADHAR Card
  • PAN Card
  • ECS Mandate and
  • Cancelled cheques

In case you are applying for a consumer durable loan of a higher amount, then, in addition to the above documents, you will also need to provide:

  • Proof of income
  • Employee ID
  • Income Tax return (ITR) and
  • Updated bank statement

What is the minimum or maximum amount of consumer durable loan that is approved?

The specific maximum and minimum limits of a consumer durable loan amount is dependent on the particular lender’s terms and conditions. However, normally lender may provide consumer durable loan for an amount as low as INR 5,000 and as much as over INR 1 lac.