Introduction
Personal loan lenders gauge an individual’s ability of loan repayment by verifying his or her credit score. Credit score acts as a summary for one’s credit history, total credit borrowed, how the repayment was made, and several other factors. These factors help lenders in determining whether giving a personal loan to the individual will be a risky proposition or otherwise. Most personal loans are unsecured and lenders have no other assets to depend upon for recovery. This is why a credit score is considered foremost while giving out a personal loan.
Often, we hear that one cannot get a personal loan while having a poor credit score. This may not be true in all cases. You can get a personal loan even with a poor credit score and here are some of the measures you can use for the same.
Tips to Get a Personal Loan with a Low Credit Score
Provide Evidence that Your Income is Enough to Make Timely EMI Payments
If you have got a salary raise or have an extra source of income, getting a personal loan could be easy despite a poor credit score. This is because lenders will consider your application basis your income and capability to repay. If you can prove to the lender that your job and income are steady, they will grant you a personal loan even if you have a poor credit score. However, be prepared to pay higher interest on such loans which are borrowed with a poor credit score.
Reduce the Amount of Personal Loan Applied
When you seek a high amount in a personal loan and have a low credit score, it indicates a higher risk for the lender. Lenders tend to view these indicators as signs of a potential default on repayment. On the other hand, if you make an application for a lower personal loan amount, lenders will be comfortable in granting the personal loan since a lesser amount is far easier to repay.
Apply along with a Co-applicant or Source a Guarantor
If you have a low credit score, you can get a personal loan by applying with a co-applicant or going with a guarantor. It is important to note that the co-applicant or guarantor must have the necessary documentation for completing the requisite KYC formalities and also provide signatures as needed. The main advantage here is that once the lender is convinced about the source and stability of income of the co-applicant or guarantor, it becomes easy to get a personal loan. The co-applicant or guarantor should also preferably have a better credit score.
Check for Error in Your Credit Report
There are chances that sometimes your credit report carries some errors. This is mostly in cases where the latest information is not up to date as per your records. Such errors can have a severe impact on your credit score without your knowledge. Therefore, it is important to verify your credit report regularly and ensure that it is corrected. Once your credit score is improved, you can have a better chance of easily getting a personal loan.
Request Lender for NA in Credit Report
A NA or NH tag in your credit report indicates the absence of any prior credit activities or in the past 36 months. This will mean that you will not have a credit score tagged to your name. Thus, you can have a word with your lender about your credit inactivity. There are chances that the lender offers you a personal loan at a higher interest rate in such cases.
All of the above measures will ensure that you can avail a personal loan easily even if you have a poor credit score. However, it is important to have sufficient funds for future repayments. If you don’t, then there are chances that your credit score will get impacted further. You can make use of a personal loan EMI Calculator to understand how much you need to pay advance and start planning your repayments. As a last option, you can assess if any of your assets can be pledged to get a personal loan.
Importance of Credit Score
Your credit score indicates how creditworthy you are. A good credit score is usually in the range of 300 to 900. A score of 900 indicates the highest level of creditworthiness. The higher your credit score, the better your chances of a personal loan application getting approved.
Your credit score is dependent on your repayment track record on all your existing loans and borrowings. Timely repayments on all debts such as credit card bills, loan EMIs, etc. will ensure that you maintain a high score. However, if you default on loan repayment, it will result in a lower score. Personal loans defaulters are usually rejected by lenders.
Eligibility for a Personal Loan with a Low Credit Score
Your credit score is an important part of your loan eligibility. Other than this, many factors play a role in getting approval for your loan application. You can use a personal loan eligibility test for a fair assessment of the quantum of loan that you can avail. It also gives you an idea of the EMIs that you will need to pay. A medium to good credit score has higher chances of easily getting a personal loan sanctioned. In case of a low score, you could be eligible for a loan but the interest rates will be on the higher side.
In case of a low credit score, your best option for getting a personal loan is to seek it from NBFCs. NBFCs have better flexibility when it comes to eligibility criteria as compared to banks. If you have had a history of loan default, make sure that you explain this to the lender. As long as you have a valid reason for the same, such as a medical emergency, lenders will consider sanctioning your loan at a reasonable interest rate.
At CreditMantri, we provide you with access to a wide range of personal loans matched to your credit profile. Check your eligibility and apply online on our site.