A personal loan is a type of unsecured loan which financial companies offer. They are considered to be unsecured and do not carry the security documents. These loans are made purely on the basis of their credit score and ability to repay the loan from their current personal income.
You can obtain a personal loan for your personal requirements such as home renovation, wedding, medial treatment, vacation travel. A personal loan will be given to salaried peoples. Normally, personal loans processed very fast and require less documentation.
What is CIBIL Score and why is it important for Personal Loan?
CIBIL (Credit Information Bureau, India Limited) prepares a credit score as the first criteria for testing a person’s eligibility for a personal loan. A credit score reflects a three-digit overview of your credit history itself.
This is based on information presented on a monthly basis by banks and other financial organizations ranging from 300 to 900. A ranking below 750 is considered to be a low score of CIBIL. Banks do not usually accept personal loans from people with low CIBIL score, or they may charge a very high-interest rate even if they do.
CIBIL score is the first thing they’d test when applying for the loan. CIBIL score depends on personal loans, home loans, auto loans and/or credit card balances being repaid. It will turn into a strong CIBIL score if the repayments are made in a timely manner. On the other hand, the CIBIL score will have a negative impact on the untimely payment of dues and EMIs.
A personal loan is a loan provided to deal with personal emergencies. A provider carefully investigates if the borrower is capable of repaying the loan on time to approve a personal loan. Since there is no security or insurance deposited with the investor, it is necessary for them to verify the applicant’s background history in terms of CIBIL performance credit repayment.
What are the factors causing a low CIBIL Score?
The factors that produce a poor CIBIL score are as follows:
- Multiple loans cause a low CIBIL Score.
- High Utilization of credit limits.
- Untimely payment of loan EMIs or Credit card dues.
- A higher percentage of unsecured loans.
- Having no credit history at all.
- Too many rejected loans/credit card requests.
- Settling credit cards with the bank by paying a lower amount than the dues.
How to get a personal loan with a low CIBIL score?
A low CIBIL score may lower the chances of being approved for a personal loan, but there are other ways that could be considered to allow the use of a low CIBIL score for a personal loan. Some of the solutions that could help obtain a personal loan with a poor CIBIL score are as follows:
Collateral loan: If the application for a personal loan is not approved, you may try to obtain a secured loan. Also with low CIBIL score assets such as cash, property, fixed deposits, etc. can be used to take advantage of a secured loan.
Check for tie-ups between your employer and the lender: When you work in a reputable company, as part of corporate relationships, there is a fair chance that it may have ties with the lenders. The bank also provides additional incentives on loans and other lending services as a result of such tie-ups. This could be helpful in securing a loan.
A joint loan with your spouse or family member: Check if they have a good CIBIL ranking with your spouse and family members. If anyone in the family has a good CIBIL score, you will take out a shared loan dependent on both of the CIBIL score that could be approved.
A guarantor: If you can get a guarantor from family or friends with a strong CIBIL score then there is a better chance that you may get a personal loan that is approved on the basis of the CIBIL score of the guarantor.
Other Sources: Also worth considering are other sources apart from banks that might lend you. Non-bank financial firms (NBFCs) are more than willing to offer you a loan but at a higher interest rate than the banks.