5 MinsSept 6, 2021
Madhav and Anuradha are planning to get married in a few months. While initially they will be staying with Madhav’s parents, they hope to buy a house in three years.
Always a careful planner when it comes to finances, Anuradha wants both of them to take small personal loans individually. Madhav is not convinced and does not want to start their married life with debt. But when Anuradha explained the rationale behind her thinking, he was convinced. Here is how Anuradha argued her case for the need to avail small personal loans as a step towards building credit history:
Credit Scores
Credit scores are assigned by credit bureaus like CIBIL and depend on a person’s track record of repaying debts to banks. They typically range between 300 and 900. Your credit score determines whether banks will lend money to you and, if they do, on what terms. Anything above 750 is a good credit score.
Credit scores are built over time. A customer needs to establish a track record of borrowing and repaying on time. Do this repeatedly, and the score improves. Anuradha has a credit card and pays all her bills on time. Madhav had taken a bike loan and repaid it. But this is the only debt the couple have taken. Their credit scores are in the range of 600. They are good but not excellent.
Long-term planning
Anuradha is recommending that they take small personal loans and repay them on time to improve their scores. She tells Madhav, that they should take such small personal loans and repay them over the next 12 months. Once this loan is repaid, they should repeat the process the following year and so on. This will help improve their credit scores.
The couple plans to buy a flat in 3-4 years, for which they will take a substantial home loan. If they have managed to improve their credit scores in the interim, banks will be happy to offer them favourable interest rates and maybe even a higher loan amount.
Costs
Anuradha has checked with her Axis Bank relationship manager. Axis Bank’s interest rates for personal loans range between 12-21%, depending on the customer's credit history. Since the couple has good credit scores, if not excellent, the relationship manager has assured her that they should get these loans at reasonably attractive interest rates.
Anuradhathen checked Axis Bank’s personal loan EMI calculator. If each of them takes a loan for Rs. 50,000 and repays it over a year, at, say, 15% interest, the EMI will likely be about Rs. 4,500 for each loan. She believes that given their salaries and lack of other financial commitments, the couple should be able to afford these EMIs.
[Also Read: Ways To Improve Credit Score]
Points to remember
Anuradha pointed out that they should keep a few things in mind. The whole point of this exercise is to boost their credit scores. They should, therefore, not take large amounts as loans, which they will find difficult to repay. And neither of them should ever default on the repayment. If there are periods when money may be scarce, say, towards the end of the financial year when their employer deducts a sizable chunk from their salaries towards income tax, they should cut down on other expenses but ensure that the EMIs are paid on time.
Axis Bank offers Personal Loans ranging from a minimum of Rs. 50,000 to a maximum of Rs. 15,00,000. Axis Bank Personal Loans come with tenures ranging from 12-60 months. So, check what works for you.
Any salaried employee of a public or private limited company or the government sector between 21 and 60 years and a minimum monthly income of Rs. 15,000 is eligible for an Axis Bank Personal Loan. You need minimum paperwork to get this loan: Identity proof (Aadhaar card, driver’s license, voter ID), PAN card, proof of residency, and salary slips.)
Visit Axis Bank’s website to use personal loan emi calculator and apply for Axis Bank Personal Loan.
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