personal loan

How to Apply for a Personal Loan with a Low CIBIL Score?

A personal loan is an unsecured loan that a borrower can use in an emergency. Before approving a personal loan, the lender looks at the borrower’s CIBIL Score. Personal loans with a low CIBIL score have a lower likelihood of being approved. Banks consider such applicants risky, and generally do not approve loan applications of such applicants. There is a greater chance that the borrower might have defaulted on any of his previous loans. Therefore, banks consider it risky to lend to applicants that apply with a low credit score. 

Similarly, when you apply for a personal loan and have a good online CIBIL score, then banks consider you trustworthy and are willing to offer you a loan. However, you can still obtain a personal loan even if you have a low credit score. But first it is advisable, to gain a clear view, you must completely understand CIBIL Score and its relationship with personal loan.

Importance of Credit Score for obtaining a Personal Loan

CIBIL (Credit Information Bureau, India Limited) is in charge of generating a credit score, which is the first factor used to determine a borrower’s eligibility for a personal loan. A credit score is a three-digit numerical representation of one’s whole credit history. Financial institutions give this information on a monthly basis. It has a value ranging from 300 to 900. A CIBIL score of less than 700 is considered low. Personal loans that meet these criteria are often avoided by banks. Despite the fact that they offer a hefty interest rate. Financial firms will initially look at your CIBIL score. CIBIL score acts as a factor to evaluate your creditworthiness. 

Moreover, your credit report is another important factor that helps in evaluating your creditworthiness. Your credit report contains all the previous information about all your existing and past credit applications. Your report also provides the information to the lender if you have ever defaulted on any of your previous loans. Because this score is based on loan and credit card debt payback history. As a result, a strong credit score indicates timely payment of all EMIs. Otherwise, late payments and EMIs will reduce your credit score. In the event of an emergency, a creditor may obtain a personal loan. So, in order to grant a personal loan, the bank does hard enquiries to determine whether or not the applicant is creditworthy. Because the lender has not deposited any security. They must check the applicant’s credit repayment history using the CIBIL score.

Factors lowering CIBIL Score

Although there are various ways why an applicant might have a low credit score. But, there are some significant ways as to why an applicant would have a low CIBIL Score. It is advisable to avoid such factors in order to maintain a high CIBIL score. Some of those factors are as follows:

  • Too many debts lower your credit score.
  • Excessive use of credit limitations.
  • Irregular EMI or credit card payment.
  • An unsuitable mix of secured and unsecured loans.
  • There is no previous credit history.
  • Refuse loan/credit card requests.
  • Getting rid of old credit cards.

Various Ways to Obtain Personal Loan with Low CIBIL Score

If your credit score is low, your chances of acquiring a personal loan are reduced. There are, however, methods in which a lender could supply you with a personal loan. Some of the alternatives for the same are as follows:

Loan with Collateral

Secured loans are available to borrowers. Furthermore, collateral loans such as gold loans, loans against land, fixed deposits, and so on might assist in obtaining a secured loan even with a low credit score.

Relationship between the firm and the lender

If a borrower works for a reputable company, the lender may be able to obtain the loan as part of the business connection. In addition, the lender offers additional terms. Finally, it facilitates the acquisition of loans.

A combined loan with a family member

If any member of the family has a high CIBIL score. Borrowers can apply for a joint loan that is granted based on both of their CIBIL scores.

Guarantor with a solid credit rating

If a borrower can find a guarantee among his or her relatives with a decent CIBIL score, the borrower has a better chance of getting a personal loan based on the guarantor’s credit score.

Obtain a Loan from an NBFC

Non-banking financing firms (NBFCs) are more eager to provide you a loan than banks, however the interest rate may be exorbitant.

These are some of the ways by which you can obtain a personal loan even if you have a low credit score. However, having multiple loan rejection on your credit report can further lower your score. Therefore, it is advisable to follow the steps on how to improve your CIBIL score first and then apply for a personal loan.

 

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