In today’s fast-paced world, personal loans are becoming a frequent financial tool for fulfilling several needs, like funding a wedding, paying off debt, or covering unexpected medical expenses. Nonetheless, it could be challenging for you to get a personal loan if your CIBIL score is low. Don’t panic if your credit score is low; you still have options. This comprehensive guide will walk you through every option available for getting a personal loan with a low CIBIL score, along with tips to improve your chances of approval.
Understanding Your CIBIL Score
Let us first define what a CIBIL score is. Your credit history is summarized by your CIBIL score, which is a three-digit figure between 300 and 900. Lenders use it to assess your creditworthiness. A score of 650 or under is considered risky, while a score of 750 or more is often regarded as excellent.
Factors that affect your CIBIL score
The following variables impact your CIBIL score:
Payment History: Your score is improved by on-time payments.
Credit Utilization: A high credit utilization rate might result in a poorer credit score.
Length of Credit History: Your score may rise if your credit history is longer.
Credit Types: Your score may be improved by a combination of secured and unsecured loans.
New Credit: Your score may need to improve if you make several new credit inquiries.
The Challenges of a Low CIBIL Score
Lenders may view a low CIBIL score as a sign of potential high-risk borrowers. It may lead to:
- An increase in interest rates
- Reduced loan amounts
- Stringent terms for repayment
- Higher chance of loan denial
Even with a poor CIBIL score, there are still methods to be approved for a personal loan.
Solutions for Low-CIBIL-Score Personal Loans1. Safe-Line Personal Credit
When applying for a secured personal loan, you must put up an asset as security, such as gold, real estate, or a fixed deposit. Despite your poor credit score, the lender may be more likely to give you a loan since they know they will get their money back if you default.
2. Credit extended by Non-Banking Financial Companies (NBFCs)
When it comes to lending requirements, NBFCs are more accommodating than traditional banks. They frequently provide personal loans—although at potentially higher interest rates—to borrowers with poor CIBIL ratings.
3. P2P Lending: Peer-to-Peer
Peer-to-peer lending systems facilitate direct connections between borrowers and lenders. These platforms frequently consider variables like your salary, work history, and credit score.
4. Unions Credit
Compared to banks, credit unions are member-owned financial cooperatives that frequently provide more accommodating loan terms. Even with a poor credit score, you could have a greater chance of getting a loan if you’re a member of a credit union.
5. Online Moneylenders
Many online lenders focus on providing personal loans to borrowers with bad credit. Using sophisticated algorithms, these lenders evaluate your creditworthiness based on various indicators, including bank account activities, job status, and income.
Tips to Raise Your Chances of ApprovalExamine the errors in your credit report.
Check your credit report for any errors that may be causing your score to drop. If any are discovered, challenge them right away.
Give Evidence of Your Income
Demonstrating a consistent and ample source of income helps lenders comfort you about your ability to repay the loan. Prepare copies of your most recent tax returns, bank statements, and pay stubs.
Get a Co-Signer
Having a co-signer with a high credit score will help you get approved more often. But remember, your co-signer has the same liability for the loan.
Select a Lower Loan Amount
Less risk to the lender means that applying for a lesser loan amount might boost the chances of acceptance.