CIBIL Score Below 730? New Lending Rules Could Make Home, Car or Education Loans Harder From 2027

If you’re planning to buy a home, finance a new car or take an education loan in 2027, there is one number that you need to start taking note of today – your CIBIL score. A new lending rule, known as the ‘Expected Credit Loss (ECL) Direction, 2026’, has been announced by the Reserve Bank of India and will apply to banks in India from April 1, 2027. It aims to boost the health of the Indian banking system. But it will likely be challenging for the loan applicants with a CIBIL score below 730 to avail themselves of credit facilities. As a result, banks may become skittish and demand higher interest rates or more collateral before lending money.

This change could be huge for millions of new borrowers and those with no credit history.

What is the new ECL rule of the RBI?

The new accounting system called the Expected Credit Loss (ECL) Direction, 2026, will help banks to better manage the risks of loan defaults. When a loan goes bad, the bank usually writes it off. This is generally because the borrower has not paid for more than 90 days. Under the new framework, banks will need to estimate future credit losses much earlier and set aside provisions in advance, even before a loan turns into a non-performing asset (NPA).

So banks are constantly looking ahead to see if a borrower may default in the future rather than wait for a default to actually happen.

The new rules will be effective from April 1, 2027.

How Could It Impact Your Loan Approval?

The new framework is expected to lead banks to set aside a bigger chunk of money for risky loans. Industry estimates suggest that the additional provisioning could reduce the banking sector’s profits by almost Rs 42,000 crore.

Banks are likely to tighten up their lending criteria in order to protect profitability.

Borrowers with a CIBIL score of less than 730 may not find it so easy to get a loan as it is today. Banks are likely to look at loan applications more closely before approving them, particularly for home, car and education loans.

If your loan is approved, you may pay a price. Lenders might demand a higher interest rate or ask for more security, such as extra collateral or a guarantor, before releasing the loan.

Banks will also conduct deeper checks on an applicant’s financial profile, and the approval process may take longer. And for some borrowers with weaker credit histories, the chances of the loan being flat-out denied could also increase.

Currently, according to industry estimates, nearly 62 per cent of loan applicants in India have a CIBIL score below 730. This means that a large section of the borrowers could be impacted in case the lending standards are made more stringent.

Why Is 730 Becoming A Number To Watch?

Your CIBIL score is a reflection of your past credit behaviour. Banks already use this score to approve loans, and it is expected to become even more important under the ECL framework.

Lenders are likely to favour borrowers with scores of 730 and above, as such customers are likely to present a lower credit risk and require lower provisioning under the new rules.

Banks will be charging higher interest rates for customers who are riskier from the lending perspective. Those who have a better credit profile could get better pricing and loan terms, as per reports. The focus will also shift to identifying credit risk much earlier.

How Will Banks Assess Borrowers?

Under the new rules, banks are expected to look much more closely at your overall financial health rather than just your payment history. Instead of just checking if you have been paying your EMIs on time till now, they will check if you are likely to repay the loan comfortably in future.

This may include checking your payment history by the lender, any change in your CIBIL score, your income stability, risk of job loss or salary cut, your existing debt burden, regular utilisation of your credit card limit and the loan-to-value ratio, especially for home loans.

Even little financial errors could matter. A missed EMI or a spike in credit card utilisation are small misses that could be early warning signs impacting your chances of getting a loan or the terms offered by a bank.

How Will Provisioning Change?

The new rules require banks to set aside much more money if borrowers default on their loans.

For example, on a home loan of Rs 25 lakh:

For a default period of up to 30 days, a sum of ₹10,000 and ₹25,000, respectively, shall be earmarked for each such account. In the case of default of up to 31-60 days, a sum of ₹10,000 and ₹1.25 lakh shall be provided against such loan account for a default period of up to 60 days.

On completion of 91 days of default, banks are required to provide ₹5 lakh for such loan accounts (20%) as against ₹3.75 lakh (15%) in terms of existing directions. It’s likely to increase the lending cost and banks might also become more reluctant to lend to riskier borrower types.

What Borrowers Need To Do Before 2027

If you’re planning to apply for a home, car or education loan in the next year, improving your credit score now may make you more likely to get better loan terms down the road.

A few simple steps include:

Pay all your EMIs and credit card bills on time.
Use your credit cards sparingly.
Don’t make multiple loan applications in a short space of time.
Regularly check your CIBIL report for errors and get the wrong entries corrected.
Borrow responsibly to establish a positive credit history.

How Your Loan Plans Could Be Impacted By The New RBI Rule On Cibil Score

The ECL framework aims to strengthen the resilience of India’s banking system by encouraging lenders to identify credit risks early on. That helps to strengthen the financial system, but it also means banks are likely to be more cautious about who they lend to.

Now is the best time to pull up your socks if your CIBIL score is under 730 and you plan to take a home, car, or education loan after April 2027. A good CIBIL score helps you improve your chances of getting a loan approved. You also improve your chances of getting access to attractive loan terms and a lower interest rate.

Also Read: What Happens When an EV Battery Dies? How India Plans to Recycle It

The post CIBIL Score Below 730? New Lending Rules Could Make Home, Car or Education Loans Harder From 2027 appeared first on NewsX.