The interest that you would pay on your homes loans will soon be linked to your credit rating, or the discipline you maintain in repaying your existing loans. If the credit score improves, you will have to pay less EMI, and the other way around.
Bank of Baroda (BoB), which announced lowest rates on home loans on Monday, will be the first bank to link interest rates on home loans to credit scores of borrowers.
The bank will initially rely on credit scores of Credit Information Bureau of India (CIBIL) wherein those with scores above 760 points will be charged 8.35%. Other banks are likely to take a cue from BoB's latest initiative.
Customers of BoB having credit score in the range of 725 to 759 points will be charged 8.85% while those having credit score below 724 points will be charged 9.35% on home loans.
First-time borrowers, with no credit history with any credit information bureau, will be charged 8.85%.
Officials from the bank who did not want to be named said that it wanted to reward customers with better rating by offering them better rates. The new rates charged by the bank is irrespective of the tenure and the amount.
Bank of Baroda's rate of 8.35% is the lowest among all banks. Other large banks — State Bank of India and ICICI Bank — which have predominantly offered lower rates are charging 8.65% and 8.70%, respectively, on home loans.
The Cibil score indicates the financial discipline maintained by borrowers in terms of timely repayment of their dues.
All banks are mandated to provide information about their customer's loan history to credit information bureaus such as Cibil, and based on this data, credit score of a borrower is chalked out.
Bank of Baroda's one-year marginal cost lending rate (MCLR) — which is the floor rate at which they lend to the best customers — is pegged at 8.35%. The bank has not kept any spread or mark-up on its MCLR for best rated home loan borrowers. In case of SBI, which has a one-year MCLR of 8%, has kept a 65 basis point mark-up for home loans.