Whenever you apply for a personal loan, the first thing lenders do is check your credit score. The three-digit number reflects your credit history and repayment abilities and determines your creditworthiness.
Checking your credit score helps your lender gauge the risk associated with sanctioning your loan. This is especially important in a personal loan as it is an unsecured loan.
Lenders generally prefer individuals with a credit score of 750 and above. However, this does not mean people with low scores do not stand a chance. Many financial institutions also offer loans with low CIBIL scores.
Read on to find out the measures you can take to avail of loans with low credit scores and how you can improve your score in the future.
How to Obtain a Personal Loan with a Low Credit Score?
Personal loan for a low CIBIL score sounds impossible. However, there are specific measures you can take to make the process easier. Let’s look at a few of them below:
Show Evidence of Adequate Income
If you have a stable income source, lenders might still be interested in your application despite the low score. Moreover, a well-paying job, recent salary hike, bonus, or an additional source of income will add extra points in your favour.
Taking this route works well for first-time loan applicants who do not have a credit history to prove their reliability.
Consider Applying for a Lower Amount
Lenders keep individuals with low CIBIL scores under the ‘risky’ category. For them, it is an indicator of possible future default. Hence, they’re sceptical about sanctioning high loan amounts with low scores.
But if you lower the amount, they may feel more inclined to consider your request. Plus, the repayment of a lower loan amount is also easier and faster.
Apply for a Joint Loan
A faster way of getting a personal loan with a low score is by adding a co-applicant or guarantor with good ratings. The co-applicant is responsible for the loan along with the primary applicant. This reduces the risk for lenders and helps you land a better deal.
Opt for Secured Loans
If the low CIBIL is affecting your application process, you can consider availing of the loan with collateral.
Collaterals such as land, gold, or a fixed deposit will secure your application and increase the lender’s confidence.
This way, they might overlook your credit score and sanction the desired loan.
Consider Financial Institutions tied up with Your Employer
If your company has a tie-up with any financial institution, you can try applying for a loan from them. These institutions may give you special deals that will enable you to get a loan on a low score.
Select Digital Fintech Lenders
Large financial institutions are less likely to accept a loan application with a low credit score, even if you meet the above conditions.
So instead, you can go for new-age fintech lenders who consider online applications. Not only do they make loans more accessible, but they also ensure faster sanctions and minimum paperwork.
Improve Your CIBIL Score
The ways above can help you obtain personal loans with a low score. However, they are not a substitute for a good CIBIL score. You can ensure a hassle-free loan from any financial institution with good scores.
Hence, it’s essential to improve your CIBIL score. But how do you do that? The following section will throw light on it.
How to Improve Your Credit Score?
Although you can get personal loans for low CIBIL scores, they don’t leave you with much negotiating power. The lender can charge you higher rates of interest or put conditions in your offer that aren’t in your favour. Hence, it’s always advised to try and improve your CIBIL to 700 and above.
Here are a few steps to improve your CIBIL score to get easy access to loans in the future.
Pay Your Bills on Time
Default in payments is a significant factor affecting your CIBIL score. So always ensure to pay all your bills on time. This includes all dues on loans, credit card bills, phone bills, etc.
Lower Your Credit Utilisation Ratio
Your credit utilisation ratio refers to the percentage of the available credit that you are actually using. A credit utilisation ratio above 30% is considered high and negatively affects your credit score.
On the other hand, a ratio below three reflects that you’re managing your debts well and contributes positively to your score. So, always strive to keep the ratio below 30%.
Limit Your Hard Inquiries
Hard inquiries are inquiries that individuals make when they apply for a new credit card or a loan. Too many inquiries project you as credit hungry and give a negative impression to the lenders.
So, refrain from making multiple inquiries in a short period, as it can lower your credit score.
Do Not Close Old Accounts
Your credit history is a significant determinant of your CIBIL score. Old credit card accounts show your long history, which might be beneficial in proving your creditworthiness, provided you have good records.
So, do not close the credit card unless you have other long-standing good credit accounts.
Correct Mistake in Your Credit Report
Your CIBIL report may contain mistakes and errors. This usually happens if the latest information is not updated against your record.
Your credit score might be suffering through no fault of yours. So, check your credit report regularly to correct misinformation on a timely basis.
Choose Comfortable Repayment Tenures
A comfortable tenure will enable you to repay your outstanding loans without difficulty. In addition, your credit score will gradually improve when you keep paying your EMIs on time.
If you’re seeking personal loan for low CIBIL score, follow the above steps to get the loan of your desired amount. However, do ensure to take steps to improve your credit score so you have a better standing in the future.
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