It is anticipated that other leading housing loan providers, including private sector banks, will soon pass on the benefit of the repo rate cut to borrowers. However, not every borrower will fully benefit from the lower home loan interest rates. The reason is that the interest rates offered by lenders vary from person to person, depending on their credit scores.
The credit score, also referred to as the credit score, is a three-digit numeric summary of a borrower’s credit payment history.
A person having a poor credit payment history will have a lower credit score. Banks charge higher interest rates on home loans offered to such borrowers.
However, persons having a flawless credit payment history have high credit scores and they are the ones who get cheaper home loan rates.
How the credit score affects loan burden
As banks increase or decrease their interest rates based on credit scores, the monthly EMI and overall loan burden of a person can increase significantly if his credit score is even 50 or 100 points less than the ideal credit score of 750 or 800. Let’s understand this with the examples of Bank of Maharashtra and Union Bank of India.
Both these banks have recently revised their interest rates and are now offering home loans starting at 8.1%. But to be eligible for this rate, a customer should have an ideal credit score of 800. For persons with lower credit scores, these banks are charging higher interest rates.
If his credit score is less than 50 points of the ideal, say 749, the additional amount payable could be around ₹3 lakh in case of Bank of Maharashtra and ₹6 lakh in case of Union Bank of India.
Bank of Maharashtra: Home loan EMI vs credit score
| Credit Score | Interest rate | EMI of ₹50 lakh loan for 20 years | Total amount payable |
|---|---|---|---|
| 800 & above | 8.1% | ₹42,133 | ₹1,01,12,091 |
| 750 to 799 | 8.15% | ₹42,289 | ₹1,01,49,593 |
| 725 to 749 | 8.55% | ₹43,549 | ₹1,04,51,884 |
| 700 to 724 | 9.05% | ₹45,147 | ₹1,08,35,329 |
| 650 to 699 | 9.55% | ₹46,769 | ₹1,12,24,784 |
| 600 to 649 | 9.75% | ₹47,425 | ₹1,13,82,202 |
| Below 600 | 10.15% | ₹48,749 | ₹1,16,99,769 |
Source: Bank of Maharashtra website, calculation by Upstox news team
Union Bank of India: Home loan EMI vs credit score
| Credit score | Interest rate | EMI of ₹50 lakh loan for 20 years | Total amount payable |
|---|---|---|---|
| 800 & above | 8.10% | ₹42,133 | ₹1,01,12,091 |
| 750 to 799 | 8.25% | ₹42,603 | ₹1,02,24,787 |
| 700 to 749 | 8.9% | ₹44,665 | ₹1,07,19,655 |
| 650 to 699 | 9.2% | ₹45,631 | ₹1,09,51,544 |
| 600 to 649 | 10% | ₹48,251 | ₹1,15,80,259 |
| Below 600 | 10.50% | ₹49,918 | ₹1,19,80,558 |
Source: Union Bank of India website, calculation by Upstox news team.
Please note that interest rates offered by banks may vary between a salaried and non-salaried borrower or between a male and a female borrower.
For this article, we have considered the interest rate offered only to salaried borrowers by the two banks.
If you are planning to apply for a home loan in the near future, you should start working on improving your credit score to reduce your overall financial burden.
