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How to get a Personal Loan with a low CIBIL Score?

29 January 20245 mins read by Angel One
Learn how a robust income, reputable employment, and a co-applicant can tilt the scales in your favour for a personal loan.
How to get a Personal Loan with a low CIBIL Score?
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Facing the challenge of securing a personal loan with a low credit score can be a daunting task, but it’s essential to remember that it’s not an impossible feat. Your credit score, often represented by the CIBIL score, is a critical factor that lenders/banks consider when assessing your eligibility for a loan. However, there are strategic steps you can take to increase your chances of loan approval even if your credit score isn’t stellar.

Impact of CIBIL Score

To begin, it’s crucial to understand the impact of your CIBIL score on the loan application process. CIBIL scores range from 300 to 900, with higher scores indicating better creditworthiness. Lenders categorize individuals based on their scores, and a low score might lead them to view you as a higher credit risk.

The following is a table depicting the various CIBIL scores and what they may mean.

CIBIL Score Meaning
850 – 900 Indicates that one has never defaulted on their payments even once and is an excellent score.
750 – 850 80 % of loans are approved for people who have a score above 750. This gives them the advantage to bargain for a better rate on credit cards and personal loans.
700 – 750 This indicates that the person is good to go for secured loans. However, for an unsecured loan, the bank may impose a higher rate or investigate further.
500 – 700 This indicates that a person has defaulted on their payments a few times. Personal loans would be hard to obtain, and a private financier may levy a massive interest.
300 – 500 This is considered an inferior score and indicates too many discrepancies in loan repayments to ignore. Unless the person works on improving their score, it would be close to impossible to obtain any credit from any bank in the country.

Key Components of Credit Scores

Various factors contribute to your credit score, including payment history, credit exposure, credit type and duration, and other miscellaneous factors. Late payments, high credit utilization, unsettled debts, and frequent loan inquiries can all negatively impact your credit score. It’s essential to address these issues to improve your overall creditworthiness.

Strategies to Secure a Personal Loan with a Low CIBIL Score

Prove sufficient spendable income

Emphasize your monthly income as a reflection of your repayment capacity. Lenders assess disposable income to determine if you can manage loan EMIs without financial strain. A robust and steady income can sometimes compensate for a low credit score, especially if you lack an extensive credit history.

Steady Employment at a Respected Company

Beyond the monthly pay, the source of income matters. Employment with a well-established organization enhances your credibility in the eyes of lenders. A stable job translates to regular income, reducing the perceived risk of loan defaults.

Co-Apply with a Good-Credit Partner

Adding a family member with a healthy credit score as a co-applicant can significantly improve your chances. Shared responsibility reduces the lender’s risk and enhances the overall eligibility of the loan application.

Showcase other income sources

Highlight additional sources of regular income, such as rental income or freelance earnings. Diverse income streams paint a better financial picture and make lenders more comfortable.

Avoid multiple loan applications

Each loan application results in a credit check, potentially lowering your credit score. Avoid making multiple applications in a short span to prevent looking desperate to lenders.

Additional Insights

Understanding why your credit score is low is crucial. Factors like late payments, high credit utilization, unsettled debts, and frequent loan inquiries can contribute to a less-than-ideal score. However, with the right knowledge and approach, doors can still open for you.

In conclusion, while securing a personal loan with a low credit score may present challenges, it’s not an insurmountable hurdle. By showcasing a stable income, reputable employment, and, if possible, a reliable co-applicant, you can strengthen your loan application. Additionally, addressing the factors contributing to your low credit score and taking proactive steps to improve it will not only increase your chances of loan approval but also contribute to your overall financial well-being. Remember, your financial journey is in your hands—take informed and strategic steps to navigate the path to a personal loan, even with a less-than-perfect credit score.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.

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