Soon, those paying up in time could get cheaper repeat loan

Here's good news for those who pay their loan instalments on time: the banking industry is mulling cheaper repeat loans for such borrowers, a Credit Information Bureau (India) Limited (CIBIL) official said Wednesday.

"With the Reserve Bank of India in its report mentioning the possible introduction of risk-based pricing, its implementation in our country is not going to be far away," CIBIL senior vice president Harshala Chandorkar told reporters here.

As and when this is introduced in the country, all those who pay their loans on time can expect to get a cheaper rate the next time they avail a loan, as a reward for past credit worthiness.

"Already we have been told that some banks in our country, as a customer-friendly approach, have already started to offer better rates to credit worthy people and this scheme is there in other parts of the world," Chandorkar said.

CIBIL is a Credit Information Company (CIC) founded in August 2000. It collects and maintains records of an individual's payments pertaining to loans and credit cards.

These records are submitted to CIBIL by banks and other lenders, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to lenders in order to help evaluate and approve loan applications.

The credit score of every individual or organisation that avails loans is calculated on a scale of 300 to 900, and borrowers having a score of 750 and above are considered to be very creditworthy.

The official said that loans for buying two-wheelers (32 percent) and autorickshaw loans (35 percent) are the most availed form of credit in Kerala.

"Twenty-one percent of borrowers in Kerala have a score of 800 and above, while 40 percent has a credit score of 750 and above. Compared to other states, Kerala has the highest number of credit applicants who are more than 45 years old, and 50 percent of the borrowers here were new to credit," Chandorkar said.

The CIBIL official also pointed out that Kerala has very low penetration of credit cards, and there is untapped potential for personal loans in the state.