CIBIL score isn’t everything: Why two borrowers with identical scores may get different loan rates?

In today’s competitive lending market, financial institutions are increasingly using advanced risk assessment models rather than relying solely on credit scores. 

Before you assume that a good CIBIL score ensures the best deal, it is important to understand what lenders really look at behind the scenes. Knowing these factors can help you strengthen your loan application and potentially save thousands of rupees in interest costs over the life of your loan. 

Can a borrower with a 780 score and multiple unsecured loans get a higher rate than someone with the same score but only a home loan history?

While a high CIBIL score may enable borrowers to become eligible for most loan offers, it is not the only factor to get the best interest rates for the loan. Over-leveraged borrowers with a high FOIR (Fixed Obligation to Income Ratio) or multiple existing loans may not get the best terms from the lender. 

While finalising loan terms, lenders also analyse the risk associated with income stability, employer profile and overall debt burden of the borrower.

The borrower’s existing relationship with the bank, along with the bank’s internal risk assessment models, also influences the pricing and plays an important role in deciding the interest rate. An existing customer with a high TRV may get better terms from the Bank than a new borrower with a similar credit profile. “A borrower with a CIBIL score of 780 and multiple unsecured credit products such as personal loans, credit cards and business loans can get a lower rate of interest on the new loan application than another borrower with just a home loan with the same credit score,” said Santosh Agarwal, CEO, Paisabazaar. 

Let us understand this with the help of an illustrative example:

	Borrower A	Borrower B
CIBIL Score	780	780
Annual Income	Rs. 25 Lakh	Rs. 8 Lakh
Employer	MNC	Small Private Firm
Existing Obligations	Rs. 50,000	Rs. 30,000
Existing Unsecured Loan	2 Personal Loans, 3 Credit Cards	0
Existing Secured Loan	0	1 Home Loan
Preferred Customer	Yes	No
Relationship with the Bank	Yes, a salary account, 2 loans, and 1 credit card in the same bank	New to the bank

When applying for a personal loan of Rs. 20 Lakh for 5 years, Borrower A will have a lower debt-to-income ratio with a better cash flow than Borrower B, who may not even be able to service loan repayments easily. 

Borrower A, who has repaid all dues on time to the bank where he is applying for the new loan, also has a better predictability of repayment. A safer and consistent income profile of Borrower A makes him a low-risk applicant, whereas Borrower B, employed at a small private firm, who may not have a consistent income in the future, poses a higher risk.

Here, borrower A will have a higher chance of getting a lower interest rate on the new loan than borrower B. Thus, it is recommended for applicants with high CIBIL scores to analyse all factors before expecting the best interest rates based only on the score.

What are the most common reasons borrowers with excellent CIBIL scores fail to secure the best loan rates?

Here are some of the most common reasons why borrowers with excellent scores still miss out on the best loan offers: 

High debt-to-income ratio (DTI):

Even if your credit score is above 750 or 800, lenders may be concerned if a large portion of your income is already committed to existing EMIs. A high debt burden increases repayment risk, prompting lenders to charge a higher interest rate.

Unstable income or employment:

Lenders prefer borrowers with steady and predictable income. Someone working with a reputed company for several years may receive a better rate than a borrower with frequent job changes or irregular income, despite having the same CIBIL score.

Frequent credit inquiries:

Multiple loan or credit card applications within a short period can raise red flags. Frequent credit inquiries may indicate financial stress, making lenders cautious even when the credit score remains high.

Limited credit history:

A borrower may have an excellent score but a very short credit history. Lenders often prefer applicants who have successfully managed credit over many years rather than those with only a brief borrowing track record.

Existing loan profile:

The type and mix of existing loans matter. Borrowers heavily dependent on unsecured credit, such as personal loans and credit cards, may be viewed as riskier than those with a balanced credit portfolio.

Employer and profession profile:

Many lenders classify borrowers into risk categories based on their employer, industry, or profession. Employees of top-rated companies, government organisations, or established professionals may receive preferential rates.

Loan amount and tenure:

Larger loan amounts or longer repayment tenures can sometimes attract higher rates because they expose the lender to risk for a longer period.

Property or asset quality:

For home and vehicle loans, the asset being financed plays a role. A property with legal complications or lower marketability may result in less favourable loan terms regardless of the borrower’s credit score.

Relationship with the lender:

Existing customers often receive better rates. If you maintain salary accounts, fixed deposits, investments, or a long banking relationship with a lender, you may qualify for special offers unavailable to others with the same CIBIL score.

Internal risk assessment models:

Every lender has its own underwriting criteria. While your CIBIL score is important, banks also use proprietary risk models that consider dozens of variables. As a result, two borrowers with identical scores can receive different interest rates from the same lender.

Key takeaway

A good CIBIL score is undoubtedly important, but it is only one part of the lending equation.  If you’re planning to borrow, don’t focus solely on improving your CIBIL score. Keeping your debt under control, maintaining a healthy repayment record, and strengthening your overall financial profile can go a long way in helping you secure better loan terms and lower interest costs. 

Even a score of 780 or above may not fetch the best rates if you have high EMIs, multiple unsecured loans, frequent credit enquiries, or an unstable income profile. Comparing loan offers from multiple lenders and understanding the factors that influence loan pricing can help you avoid paying more interest than necessary. 

Disclaimer: The information provided in this article is for educational and informational purposes only and should not be considered financial, legal, or credit advice. Loan eligibility, interest rates, and lending decisions vary across banks and financial institutions based on their individual underwriting policies, risk assessment models, and borrower profiles. The examples used are illustrative in nature and may not reflect actual lending outcomes. Readers are advised to consult lenders or qualified financial advisors and compare multiple loan offers before making any borrowing decisions. Credit scores are only one of several factors considered during the loan approval and pricing process. 

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