CreditMantri matches your credit and demographic profile to lender's Personal Loan lending criteria - others just match your demographic criteria. We shortlist lenders willing to lend to you based on our proprietary matching algorithm.
In effect, we pre-screen your application to make sure you are likely to qualify as per the lender’s credit criteria. We upfront check whether you qualify for Personal Loan. Hence the chances of your Personal Loan application getting approved is higher.
A personal loan is a loan taken by an individual to fund any personal expense like, for example, a wedding, to make renovations to the home or even for a vacation. Unlike many other kinds of loan, there is no restriction on how the borrowed amount is finally used - the borrower has full freedom to use the money for any purpose they want.
There are two attractive features of a personal loan:
If you need money quickly and for a relatively short term, then a personal loan is a good option. The loan disbursal can be relatively quicker than for most other loans since you do not have to provide documentation for the purpose the loan amount will be used for. For a home loan, for example, you need to get the legal documents pertaining to the title deed of the property, all the required government approvals and other supporting documentation. Since you are free to use the personal loan for any purpose, this end-use documentation is not required.
If you do not have any assets to pledge as collateral for a loan, then a personal loan might be a good option. In order to safeguard their money, lenders will instead study your credit and repayment history to judge if you are a low-risk customer and decide whether to approve your application.
There is no typical loan amount and the loans can range from Rs.10, 000 to Rs.30 lakhs. While applying for a personal loan, the amount that you apply for must be commensurate with your ability to make repayments. Of course, the final loan amount that is approved depends on the lending criteria used by the bank/NBFC and how they evaluate your ability to repay the loan.
In terms of tenure, personal loans are relatively short-term loans and the tenure can range from 1-5 years. This is in contrast to home loans, for example, that can have a decades-long repayment period.
The most important factors that determine if your personal loan is approved or not, are your credit score and your credit report. What does this involve?
The RBI authorises three credit rating agencies, or credit bureaus, to issue credit reports and credit scores. These bureaus are CIBIL, Equifax and Experian. They collect and maintain records all your credit-related activity with banks, credit card companies and other formal lenders. The bureaus get reports on a monthly basis from these lenders on all your credit transactions. This includes information on your EMI and credit card payments (including any late or missed payments), balance outstanding, any change to your total credit limit, and all other details that are relevant to building your credit profile.
Based on all this data, a complex mathematical formula is used to calculate your credit score. The score is a reflection of your past and current credit behaviour and gives potential lenders a snapshot of your credit-worthiness. If you have a good track record of making all your payments in time and in full, your score will tend to be high. If you have a history of defaulting on payments or using excessive credit, it will have a negative impact on your credit score.
Since you do not provide any collateral to the bank/NBFC for a personal loan, the lender runs the risk of losing money in case you default on your payments. That is why lenders will analyse your Credit Information Report (CIR) or credit report, to evaluate your credit history and track your loan repayment behaviour over the years. This gives them an idea of your credit discipline and allows them to evaluate whether you are a high risk or low risk customer. A credit report that shows a consistent record of making repayments on time and overall responsible credit behaviour is an important factor for lenders in approving a personal loan application.
It is generally advisable to have a credit score of 750 or above to qualify for a personal loan. The higher your score, the better are your chances of being approved.
As a first step, lenders typically look for a minimum credit score of 750 before deciding whether to go ahead with processing your application. Since personal loans are not secured by any security deposit, lenders look at your credit history to judge if you can be trusted to fulfill your debt obligations. A credit score of 750 denotes that that the customer has demonstrated a consistent track record of making timely repayments over a substantial period of time. Lenders are assured that such a customer is not at high risk of defaulting on payments, and are more willing to approve the personal loan.
There is no guarantee that you will be approved for a loan at any particular score. However your chances of being approved are significantly higher if you have a score above 750. At the same time, a score that is marginally below 750 does not necessarily mean that your application will be rejected. Below are some probable outcomes of your personal loan application:
If your score is between:
300-599 - You will not qualify for a personal loan. A low score in this region is a warning signal to lenders that you do not have a history of good credit behaviour. Most lenders will reject your application right away. It is necessary to take immediate steps to rebuild your credit health and improve your score to a level where you become eligible for a loan.
600-749 - Though it is not a high score, you might have a chance of being approved by some lenders. They might be willing to look at other factors that will impact your repayment ability in the future like the stability of your employment, your annual salary, the extent of your other liabilities. If they think you have the ability to fulfill your repayment burden despite your score, your application has a chance of being approved. It is, however, advisable to improve your score to 750 if you are planning to apply for a personal loan. Moreover, you should raise your score before you apply for the loan so that you can avail of more attractive terms and conditions that are extended to customers with a good credit score
750 and above - You have a good chance of obtaining a loan with such a score. There are several other advantages to a high score: the approval process will be much faster; the loan amount might be larger; and you might be able to negotiate a lower interest rate. The whole loan approval process is much simpler when you have a high credit score.
It is important to note that personal loans are the most expensive loans in the formal consumer banking system. They incur the highest interest rates since they are 'unsecured', and the bank/NBFC has no safeguard against default. The interest rate on a personal loan is influenced by a few factors including:
The advantages of a personal loan are that they are relatively quick (because they do not require as much documentation as a home or auto loan); there is no restriction on how you can spend the money; personal loans do not require any collateral. So if you do not have any assets like a home, or shares or gold to offer as security, and are in need of money urgently, this is perhaps the most convenient option.
The main disadvantage of a personal loan is the higher interest rate, when compared to other loans. Since the lenders do not have any security against payment default, they charge high interest rates to cover their lending risk. Personal loans can work out to be one of the most expensive loans to take in terms of interest payments.
If you are in immediate need of money and do not have any asset to use as collateral, then a personal loan might be the best option. However, it is important to keep in mind that you will be paying high interest rate charges on this kind of loan, so you should be have a plan for being able to make all your repayments on time. Also make sure that you have an adequate credit score before you apply for a personal loan. If your application is rejected because of a low credit score, your score will drop even further with each rejection, making it even more difficult to access credit in the future.
The only way to decide which loan offer to apply for is to research the various options thoroughly. Once you have a good idea of the offers and schemes available, you can judge which offer suits your financial situation and requirements the best.
There are several ways you can apply for a loan. You can apply directly online at the bank/ NBFC's website; or you can go in person to the branch to apply for a loan; go through online comparison websites; or you can contact a direct sales agent.
If you want to apply for a loan and think your credit score might not be good enough, CreditMantri can guide you on how to improve your score in the most efficient and effective way so that your loan application is approved. You will also be matched with the most suitable loan offer for you on the market. With a good score, you can have faster and hassle-free access to credit.