Home Loan Interest Rates for People New to Credit or Having a Bad Credit History
Last Updated : Oct. 23, 2020, 7:24 p.m.
Given the importance a good credit score holds to loan approvals, one may get surprised to know that home loans can be given to individuals who are new to credit or have a bad credit history. What makes lenders give a home loan to these applicants is the security of a home that they get from borrowers. In case any default takes place, lenders can seize the home and sell it to recover the pending dues. But what about the home loan interest rate for these applicants? As a home loan journey spans for about 20-30 years, going wrong on the interest rate front can lead to outgo beyond your imagination.
So, if you are one of these applicants, you should know the answer to this pertinent question. To let you know the same, we have this post ready for you. So, read on!
How Do Lenders Decide the Home Loan Interest Rate for People New to Credit or Having a Bad Credit History?
Lenders check the overall credit record of individuals before setting the home loan interest rate. They check their repayment history – like how good or bad they have been paying their loan or credit card dues, the date of payment, records of skipped payments, etc.
Understandably, those having a timely repayment record would have a good credit score and get the lowest home loan interest rate. But someone who has a long history of payment delays will most likely have a poor credit score. That will make lenders raise the interest rate for such individuals. A poor score can be anything below 600-650. However, some lenders can up the interest rate for even those who have scores below 700 but above 650.
But what about someone new to credit? They do not have a credit record to show. Lenders could keep their interest rates lower than someone having a poor credit history. But their rate would still be higher than someone having a credit score of more than 750. Lenders would emphasize more on income, job stability and the loan amount while setting the home loan interest rate for people new to credit.
Let’s Talk About Home Loan Interest Rates of Different Lenders for These Applicants
Lending institutions consider the credit score offered by credit bureaus such as CIBIL , Experian, Equifax, CRIF High Mark to set home loan interest rates for applicants, including those who are new to credit and have a poor credit history. Here, we will discuss the interest rate of ICICI Bank, LIC Housing Finance, PNB Housing Finance, Bank of Baroda (BoB) for these applicants. Take a look.
Let’s Begin with ICICI Bank Home Loan Interest Rate
ICICI Bank is one of the many lenders that reveals interest rates for people new to credit or having a poor credit history. People new to credit can get an interest rate of 9.00% - 10.05% across loan amounts. Whereas, someone having a credit score of 700 or below can get the home loan at 9.00% - 10.05%
What is the LIC Housing Home Loan Interest Rate for People New to Credit or Having a Credit Score of Below 600?
The LIC Housing Home Loan Rates for people new to credit is 8.65% (salaried) and 8.75% (self-employed). And when you see the highest home loan rate of LIC, it stands at 10.25%. These people can have a lower rate of around 0.40-0.50% in comparison to the highest offered by LIC. But someone with a CIBIL Score of less than 600 will have interest rates of 9.75-10.25% across loan amounts.
Does Bank of Baroda Offer the Best Home Loan Interest Rate to People New to Credit?
Bank of Baroda (BoB) offers interest rates of 8.90% to people with no credit history. In comparison, if you have a credit score of less than 650%, be ready to service the Bank of Baroda Home Loan at 10.60% per annum. The lowest home loan interest rate at BoB is 7.45% per annum. BoB home loan rates are based only on the credit score, much unlike other lenders that consider income and loan amount too to set the home loan interest rate.
How Does PNB Housing Finance Fare for People with no Credit History or Having a Bad One?
If you are new to credit and want to book a home loan at PNB Housing Finance , the interest rate will be around 8.50% - 11.95%per annum. The same rate will apply if you have a credit score of 650 and below.
How Much Interest Rate Does Bank of India Charge for People New to Credit or Having a Bad Credit Record?
People new to credit can grab a Home Loan Interest Rate of 8.85% onwards per annum from Bank of India. This rate is 0.15-0.30% higher than the lowest interest rate offered by the bank i.e. 8.85%. Those having a credit score of less than 725 to upto 675 will need to pay their home loan EMIs at 8.85% onwards per annum.
What Options Do You Have to Reduce the Effect of Higher Home Loan Interest Rates?
As you have seen above higher interest rates for people who are new to credit or have a poor credit history compared to someone having a good credit score. In case your interest rate remains more than the average market rate, you can do a balance transfer after a few years. It’s a process by which you can transfer your existing loan to another lender at a lower rate of interest.
To get favourable interest rates on a home loan balance transfer , you need to have a good credit score. You can thus pay the home loan EMIs on time for around 2-4 years before you switch your outstanding loan balance to another lender at a lower rate of interest. The maximum benefit on a home loan transfer happens when there is a lot of time left for the loan to be over and at an interest rate lower than the existing one by at least 0.25-1%.
Keeping that in mind, we have put a time zone of 2-4 years for you to do a balance transfer. The timely repayment track for these years will most likely raise your credit score to great heights. With that, getting an attractive interest rate on a balance transfer will be easier. You can check below the home loan balance transfer interest rate of different lenders.
| Lenders | Balance Transfer Interest Rates (In Per Annum) |
|---|---|
| State Bank of India (SBI) | 9.15% - 11.30% |
| ICICI Bank | 9.00% - 10.05% |
| HDFC Limited | 8.50% - 9.40% |
| LIC Housing Finance | 8.50% - 10.75% |
| PNB Housing Finance | 8.50% - 11.95% |
But How Much Will You Save on a Home Loan Balance Transfer?
The savings will depend on the time you do a balance transfer and the interest rate offered on the same. We have mentioned above the time within which you should do a balance transfer for maximum savings. Besides, we have also told you the difference in the interest rate you should look for in a balance transfer. Just to have an idea of the savings on a balance transfer, we have an example for you below. Check it out!
Example – You get a home loan of INR 55 lakh for 20 years at 8.20% per annum now. If you do a balance transfer at 7.30% around 3 years from now, how much will it save for you?
| Home Loan Aspects | Amount (In INR) |
|---|---|
| EMI Payable at 8.20% | 46691 |
| Interest Payable at 8.20% Over 20 Years | 57,07,875 |
| Interest to be Paid Over 3 Years | 13,10,575 |
| Outstanding Balance at the End of 3 Years | 51,29,694 |
| EMI Payable at 7.30% on a Balance Transfer | 43963 |
| Interest Payable at 7.30% on a Balance Transfer | 38,38,756 |
| Sum of Interest Payable Before and After Balance Transfer | 51,49,331 |
| Savings in Terms of EMI | 2,728 (46,691-43,963) |
| Savings in Terms of Interest Outgo | 5,58,544 (57,07,875-51,49,331) |
Conclusion
A home loan can be such a useful tool to build a good credit history for people new to credit and having a bad credit record. While assigning credit scores, credit bureaus also check the length of the credit. The greater length of the credit tells about your creditworthiness in a more holistic manner. As a home loan runs for quite a long time, you can just pay all your dues on time and maintain a good repayment track. Once that’s done, it will reflect positively on your credit score.