We, as individuals, have a general tendency to plan for almost everything. Education, marriage, holidays, work and our future are what we plan for. Some of us plan to study further in a renowned university, while some plan to get married at a certain age. Holidays and vacations are something we all want and the most common thing we want in life is a secured future.
While planning is easy, the actual hard part is saving up for those plans. Now, if you have any kind of savings or financial nest somewhere, you are set to carry out your plans. However, what if you come across a financial roadblock on your way to make your dreams come true? You would not and should not give up on your dreams. How about a little help instead?
Help comes to you in the form of personal loans. Be it for education, marriage or travel- a personal loan is an unsecured loan that you can avail in time of your financial crunch. While you would not need to keep any security or collateral, there are few things you will need. One of them is a good CIBIL score.
What is CIBIL Score?
Before you open your web browser and try to understand what exactly a CIBIL score is, here is a gist of it. This is your credit information report and the three digit number defines your credit history. It is as simple as that. Credit score ranges from 300 to 900 and better the credit history, higher the score.
Your CIBIL score defines how good you have been with your payments and credit exposure. While calculating your CIBIL score, your credit card utilisation, repayment of credit card bills, number of loans, repayment of those loans are taken into consideration. Once you apply and hand over the information to the agency, they calculate your CIBIL score and formulate a credit report which explains how much your creditworthiness is. This score is what you submit while you apply for a personal loan.
If you have never defaulted on payments and have good credit exposure, chances are you can get a score of 750 or above. Your high personal loan CIBIL score can not only help you avail a personal loan but also give you better interest rates and fast disbursal of the personal loan.
Steps to get a Personal Loan with a Low CIBIL Score
Just because a few things did not work in your favor does not mean you feel hopeless. If you are applying for a personal loan and your CIBIL score is low, you shouldn’t lose heart. There are a few things you can still do that can work in your favour while applying for a personal loan.
1. Opt for a lower loan amount
Applying for a high loan amount with a poor credit score can affect your chances of approval. The higher the amount you apply for, the riskier you appear to the lender. Consider applying for a lower loan amount if you meet other eligibility criteria. The lender might be willing to offer you a lower amount. What’s more, this will also make repayment easier for you.
2. Stable Income
Another way to get a low credit score personal loan is by proving your financial capability to the lender. If you have received a salary hike recently or have an additional source of income, the lender may consider your application despite a low score. You can offer evidence of a stable job and income source, which can increase the likelihood of loan approval as it indicates higher repayment capacity. However, you may have to pay a higher rate of interest on the loan.
3. Get a co-applicant
If you have a poor credit score, you can also consider applying for a loan with a co-applicant or a guarantor. You can apply for a joint loan with your spouse, close relative, or a friend with a healthy credit score, thus leveraging their score for approval. Moreover, with the permission of your guarantor or co-applicant, you need to provide a few signatures and fulfill KYC formalities for the loan. Getting a co-applicant is more likely to increase your chances of loan approval and can even fetch you affordable personal loan interest rates.
4. Pledge a collateral
While personal loans are an unsecured form of finance, you can still check if there is a provision for collateral. You can ask your lender and consider pledging security against your loan to improve your loan application. The lender might re-consider and offer personal loan for low CIBIL score if you can offer collateral as a security.
How is the CIBIL Score Calculated?
The CIBIL score is calculated as
1. Payment history: Accounts for 35% of the score. Ensuring timely EMI payments positively impact the score.
2. Credit utilisation: Makes up 30% of the score. A lower credit utilisation rate, less than 30%, is preferable.
3. Credit type and duration: Contributes 25% to the score. You must avoid having numerous credit lines and have a diverse mix of credit types (loans, credit cards) to maintain a good credit score.
4. Credit report inquiries: Factors like credit report inquiries and number of credit lines account for 20% of the score.
Your CIBIL report will include your credit score, personal and contact information, credit summary, credit history of inquiries, and financial status according to employment.
What are the Different CIBIL Score Ranges?
CIBIL Score
Creditworthiness
Probability of Approval
<600
Needs attention
Low
600-649
Uncertain
Difficult
650-699
Satisfactory
Possible
700-749
Good
Good
750-900
Excellent
Very high
Eligibility to get a Personal Loan for a low CIBIL score
Here are the various eligibility factors that you must consider to apply for a loan, even with a low CIBIL score-
1. Income- To avail of a loan with a low CIBIL score, you must be able to show the lender that you have a high income and repayment capacity. For this, you must provide proof of income.
2. Employment- Salaried individuals working in public or private organisations can apply.
3. Employment proof- Lenders also require a stable employment history and income to determine financial stability. To be eligible for a personal loan with a low CIBIL score, provide documents like salary slips and employment certificates as required by the lender.
Factors that Affect Your CIBIL Score
Applying for a CIBIL score is like tossing a coin. Either you get a high score or a low score. If your score is high, you can rejoice as you know your chances of getting your personal loan approved is high with better interest rates. However, what if you are in for a rude awakening when you find out that you have a low CIBIL score? Well, before you lose hope let’s consider a few factors that got you the low score in the first place:
1. Your application:
You know the saying “try, try till you succeed…” In this context, the multiple loan applications that you have been sending out to banks and financial institutions; be it for a personal loan, a secured loan or credit card can get you a low CIBIL Score.
2. A high number of unsecured loans:
Too much of a good thing is, sometimes, bad enough. If you have too many loans against your name, this would be another factor that can lower your CIBIL score.
3. Delaying and defaulting payments:
Any missed payment or part-payment, be it for your credit card or your loan EMI, will give you a negative mark on your CIBIL score. There is a reason why your EMI structure is explained while availing a personal loan. This is so that you know how much your monthly outflow would be against your loan and you plan your finances accordingly.
4. Someone else defaulting on payments:
Yes, you read it right. If you are a guarantor for someone else and if that person has delayed or defaulted on their payments, it will affect your CIBIL score as well.
Importance of CIBIL Score for Personal Loans
Your CIBIL score indicates your creditworthiness and is crucial in ensuring loan eligibility. Here’s how a high CIBIL score is important for you-
1. Increase your chances of approval: A higher credit score can increase the likelihood of loan approval.
2. Fetch competitive interest rates: A good score can help fetch lower interest rates, reducing overall loan costs.
3. Apply for a high loan amount: With a high credit score, you may also qualify for higher loan amounts.
4. Get better repayment terms: Strong credit scores can also help you secure more favourable loan and repayment terms.
5. Enjoy high negotiation power: Borrowers with high scores have better leverage to negotiate loan terms and interest rates based on their financial needs.
There are means and ways to everything. All you need to do is work around it. If you have a low CIBIL score and are applying for a personal loan, speak to NBFC like Tata Capital and you will find a way out.
It may be possible to get a personal loan without a CIBIL score. To determine eligibility, lenders may consider alternative factors such as high income, employment stability, and repayment capacity.
Can I Get a Loan with a 550 CIBIL Score?
Depending on the lender’s eligibility criteria, you may get a loan with a 550 CIBIL score, but it may come with higher interest rates and stringent terms.
What is the lowest CIBIL Score for a personal loan?
Typically, the lowest CIBIL score accepted for personal loans is around 600. However, each lender has different criteria, and some may consider scores below this threshold, especially if other factors like income are strong.
Which loan is easiest to qualify for?
Secured loans are often the easiest to qualify for. These loans require collateral, reducing the lender’s risk and making approval more likely even if the applicant’s credit score is low. Moreover, qualifying for unsecured loans like personal loans may be easy if you meet the lender’s eligibility criteria.
How to improve your CIBIL score?
To improve your CIBIL score, it is important to make timely payments on all credit accounts, reduce outstanding debt, and maintain a low credit utilisation ratio. Additionally, avoid applying for multiple loans or credit cards simultaneously, and regularly check your credit report for errors and rectify them promptly.
03 December 2024
8 mins read
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