Get a Personal Loan When You Have a Bad CIBIL Score

Getting a personal loan in India in 2020 has become easier than ever before thanks to the many lenders who now specialize in this industry. Even so, one standard procedure that is followed across the board is checking a borrower’s credit history before granting their loan application. If you have been researching about getting a personal loan for some time now, you are well aware of the fact that if you have a low credit score getting your loan approved will be much more difficult as compared to when you have a higher credit score.

But this doesn’t mean that with a low credit score, you are completely ineligible for getting a personal loan. Modern lenders these days are much more accepting towards borrowers with low credit scores, but there are certain actions you need to take in order to increase the chances of your loan getting approved. And in today’s article we will speak about exactly those, so let’s get started.

Prove That You Can Afford the EMIs

All around the world, every form of loan comes with the same repayment plan, and that is of an EMI. EMI, which is the industry acronym for Easy Monthly Installments, is a system of repayment wherein the lender calculates a certain amount that you need to pay every month in order to close your loan. The amount of your EMI is calculated taking into consideration the total principal amount of your loan, along with the interest amount you are liable to pay to credit monitoring services.

Let us better understand this, with the help of an example. Suppose you take a loan from Money View, which is one of the best lenders in the market. The loan amount is ₹50,000, and the interest rate is 1.13%, compounded annually. You choose a tenure of 24 months, and thus your monthly EMI will be ₹2108 for the next 24 months.

Now that you understand how the EMI system works let us understand how lenders look at your application when you have a low CIBIL score. Almost all lenders in India follow a rule of thumb, which states that the total amount of EMI a borrower is liable to pay every month should be 50% or less of the borrower’s current monthly income. This rule has been designed, keeping in mind the fact that if the total EMI amount of the borrower is greater than half of his or her monthly salary, the financial burden on the borrower will increase significantly, thus subsequently increasing the chances of default.

Therefore if you have a low CIBIL score, either you can apply for a personal loan with a lesser EMI amount, or you can increase your income and thus prove to the borrower that you can afford to pay your EMIs on time. The best way to prove this is to share your latest bank statements with the lender and make sure that both your expenditure as well as spendings are on point.

Apply for a Lower Personal Loan

When you have a low credit score, approaching a lender for a higher amount of personal loan might not be the best way to move forward. The reason behind this is simple. Your credit score is a direct indicator of your creditworthiness and thus your ability to pay back your dues. Your low credit score has already made the lender wary of your EMI affordability and thus asking for a loan with a higher principal amount will only add to that. Thus, if you have a low credit score and want to get approved for a personal loan, try to apply for a personal loan with a lower principal amount. In this manner, the risk associated with the loan for the lender will significantly reduce, and thus they will be more likely to accept your application.

Get a Co-Guarantor

Most lenders these days encourage you to apply with a co-borrower in the event that you have a low credit score. The reason behind applying with a co-borrower is simple. If you have a low credit score and your co-borrower has a high or decent credit score, it will have a positive impact on your application and also instill trust in the lender that either of you will pay back the loan on time.

Along with this, having a co-borrower will also decrease the risk on loan for the lender, thus further increasing the chances for approval.

Apply From an NBFC

These days, due to the wide availability and popularity of personal loans, almost all major banks, as well as NBFCs in India, offer this service. If you have a low credit score and want to avail of the benefits of a personal loan, the chances of getting your loan application approved are much higher when you apply with an NBFC as compared to a bank.

The reason behind this is simple; since banks cater their loan services to a mass audience, one of the most effective tools in their respect to sort out applications and find the best borrower is to check for credit history and credit score. Thus any borrower with a high credit score will get through the first step of the process easier, and anyone who has a low credit score almost always will get rejected.

On the other hand, NBFCs in India cater to a much smaller and targeted audience and thus have more flexible policies in terms of credit score and credit history. Along with this, most NBFCs take into consideration many other factors before approving your loan application, which is missing from the standard operating procedure of commercial banks, thus increasing your chances of approval.

Fix Your Credit Report

CIBIL and Experian are the most respected and widely trusted credit bureaus in India, but that doesn’t mean that they cannot commit errors. Sometimes either due to human negligence or even system malfunction, the latest updates might be missing from your credit report, and this, in turn, will have a negative impact on your score, without any mistake from your end.

Thus, if you are confident that there are some mistakes in your credit report, it is always advised that you approach the credit bureau’s grievance redressal address and ask them to rectify these shortcomings.

Request to Consider Your NA or NH

Last but not least, request the lender to consider the NA or NH markings on your credit report. NA or NH indicates that you have participated in no credit transactions in the past 36 months, and thus there is no credit score for that period.

In such scenarios, you can request the lender to consider your application, and in most cases, they will offer you the loan at a slightly higher rate of interest.

Conclusion:

Getting a personal loan with a low credit score might look impossible at first, but if you work on the methods mentioned above and work to better your credit score in the future, chances are that you will get the personal loan you need.