By Radhika Menon of KrazyBee
Lenders evaluate your ability to pay back a loan by examining your credit score. Your credit score is a summary of your credit history, including how much credit you have borrowed, how you have repaid it, and other factors. This information helps the lender determine the risk associated with granting you a personal loan, especially since personal loans are unsecured, meaning the lender has no collateral to fall back on in the event of default.
It’s often believed that obtaining an instant loan with low CIBIL score is impossible. However, this is not entirely true. There are steps you can take to increase your chances of getting a personal loan even if you have a poor CIBIL score.
Use these tips to get a Personal Loan with a Low CIBIL Score
1. Check if the Credit Score is Actually Low
Maintaining an accurate and up-to-date credit score is crucial for anyone looking to obtain a personal loan. Unfortunately, even if you regularly check your CIBIL report, it’s possible that it may not always reflect the latest update. This can lead to an inaccurate score, which can in turn have negative consequences when applying for a loan.
2. Correct Mistakes in Credit Score
It’s important to be proactive and regularly check your credit score to ensure that all the information is accurate and up-to-date. In case you identify any errors, it’s essential to get them corrected as soon as possible to avoid any unnecessary issues in the future.
You can do this by contacting the credit bureau and providing them with the necessary documentation to prove that the error was made. Once the error is corrected, your credit score will improve, which could increase your chances of getting a personal loan.
3. Proof of Income is Necessary
When applying for a personal loan, lenders will require proof of income to determine if you have the ability to repay the loan. This could include salary slips, bank statements, or income tax returns. It’s important to have all the necessary documentation ready before applying for a personal loan to speed up the approval process. Providing proof of having a job that pays a high salary, having an extra stream of income, or demonstrating consistent cash inflows can enhance the likelihood of loan approval.
4. Apply for a Lower Loan Amount
If you have a low credit score and apply for a large personal loan, your lender may view you as a high-risk borrower. This is because there is a higher chance that you may not be able to repay the loan. Conversely, if you request a smaller personal loan amount, your lender may be more likely to approve your loan request as it poses a lower risk to them. Additionally, repaying a smaller loan amount will likely be easier for you.
5. Get a Guarantor for More Value
If you’re looking to borrow a larger amount, getting a guarantor could increase your chances of approval. A guarantor is someone who agrees to repay the loan if you’re unable to do so. Having a guarantor with a good credit score and a stable income will increase the lender’s confidence in your ability to repay the loan.
6. Request Your Lender to Consider Your Case with an NA or NH in Your Credit Report
If you have not had any credit activity for a period of time in the last 36 months, it will be marked as NA or NH on your credit report. This means that you won’t have a credit score at all in your CIBIL report. In such a situation, it is important to speak to your prospective lender and explain the reason for the period of credit inactivity. It is possible that the loan can still be approved, but with a higher interest rate. It’s important to note that having a good credit score is essential for getting loans at favorable rates, so it’s best to maintain an active credit history.
Securing a personal loan with a low CIBIL score is certainly possible. With the right strategy, you can still get approved for the loan you need. All it takes is being prepared with the necessary documents and having realistic expectations about the terms of your loan. Be sure to compare different lenders and check their eligibility criteria before applying. Above all, remember to pay your bills on time and save money wherever you can – these are key steps towards improving your credit score.