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How Can Term Loans Help You Improve CIBIL Score?

Businesses, irrespective of size or sector, require a constant source of funding for operating, growth and expansion. A requirement of large capital investment can possibly hamper your cash flow and other financial plans. Of the various credit options available, a term loan proves beneficial for MSMEs over all others.

  • In India, only 16% of MSMEs access formal credit.
  • The remaining 80% settles for informal sources or remain under-financed.

Term loans are one of the most suitable financial products offered for a specific repayment tenure. Borrowers can access large amounts easily at attractive term loan interest rates. These come with numerous benefits, a noteworthy one being CIBIL score improvement.

What do CIBIL scores indicate?

Credit or CIBIL score is a 3-digit numerical expression signifying an applicant’s creditworthiness. It comes within a range of 300 to 900, where 750 and above is considered as the qualifying score for loans. This score is the summary of an individual’s credit history, financial discipline and previous performances highlighted in his/her CIBIL report. Borrowers must, therefore, know how to ensure business CIBIL score stays above 700.

Credit score plays an indispensable role in getting loan approval from lenders. It helps them evaluate a borrower’s repayment capability and risk factor precisely. A higher loan amount not only ensures quick credit approval, but also offers the following benefits:

  1. High-value financing.
  2. Lower term loan interest rates.
  3. Nominal fees and charges apart from interest rate.
  4. Power to negotiate.
  5. Longer tenure for easy repayment.
  6. Additional facilities like Flexi Loan feature.

It is crucial for every business owner to know the difference between long term and short term business loans and improve their credit report by maintaining a healthy mix in their credit portfolio.

So, how can terms loans enhance CIBIL score?

  1. Terms loans are required to pay off in small instalments every month within a pre-set due date. Try to make the payments in full within this deadline to improve your CIBIL score. It is one of the easiest ways of score improvement using a term loan. Make sure you avoid defaulting as even a single unpaid EMI can bring down this score considerably.
  2. Another great way to improve CIBIL score is by maintaining credit utilisation ratio below 30%. Although there’s no restriction on a business loan’s end-use, it is recommended to use only up to 30% of the credit limit for a positive impact on CIBIL rate.
  3. Including an unsecured business loan in your credit portfolio impacts positively on your credit profile, and hence, the CIBIL score. This makes you further eligible for loans or credit cards in the future.
  4. Utilise a term loan for debt consolidation and improve the CIBIL score eventually. Multiple smaller debts also increase your monthly interest outflow leading to a major financial burden.

Once you make timely repayments, lenders report the same to all the major credit bureaus in India, and your credit report is updated. You can additionally check the ways to follow if your credit score is low.

Besides offering chances to improve CIBIL score, a feature-rich business loan brings multiple other perks, such as high financing of up to Rs.20 lakh, no guarantor or collateral needed, convenient repayment tenure, attractive interest rates, 24×7 accessibility to online account and more. Lenders like Bajaj Finserv also provide different types of business loans for customised advantages. Lenders like Bajaj Finserv also provide different types of business loans for customised advantages.

Lenders like Bajaj Finserv also extend pre-approved offers to existing customers. Pre-approved offers are designed to simplify the loan availing process and save more time. Eligible borrowers can opt for such schemes on business loans, personal loans and a range of other financial products. Provide a few essential details only to check your pre-approved offers online.
Eligible borrowers can opt for such schemes on business loans, personal loans and a range of other financial products. Provide a few essential details only to check your pre-approved offers online.

  • According to the nation’s Finance Minister, financial institutions sanctioned around Rs.1.27 lakh crore to MSMEs as of May.

Thus, a term loan can not only improve your CIBIL score but bring several benefits for your business. Shoo off all worries and plan to penetrate into newer avenues with high-value business loans from reputed lenders in India.

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