Steps to avail personal loan with a poor credit score
When you place an application for IDFC First bank personal loan or opt for a personal loan through any other lender, your credit score becomes a crucial parameter for approval. This credit score is the summary of your previous behaviour with credit, repayment history and various other parameters that lenders factor in to determine your capacity to repay. As a personal loan is an unsecured credit option, assessing your credit rating is crucial for lenders to know the level of risk involved in providing you credit. An excellent credit score thus is crucial for a smooth loan approval procedure. But what if you do not have a strong credit score? Does a poor credit score mean you cannot avail of a loan? Well, the correct answer is no. Despite a low credit score, you still can avail of a personal loan by undertaking a few measures.
Check out how you can avail of a personal loan with a poor credit score:
∙ Choose lower loan amount
Submission of a higher loan amount with a low credit score can impact your approval chances. The higher the amount you are applying for, the riskier you may appear to the lender. Consider submitting an application for a lower loan amount if you mitigate other eligibility criteria. The lender may be willing to provide you with a lower amount. What is more, this would also make repayment much easier for you.
∙ Prove your affordability
The next way to avail a low credit score for your personal loan is by showing your financial capability to the concerned lender. Suppose you are looking to avail HDFC personal loan. However, you have a low score but have a high repayment capacity. By showing your financial capability to the lender, you may click on the HDFC personal loan apply option without any hesitation. In case you have any salary hike currently or have an additional income source, the lender might factor in your application despite your poor credit score. You can provide evidence of a stable job & income source, which may enhance your likelihood for loan approval as it shows a higher repayment capacity. However, you might have to pay a higher interest rate on a loan.
∙ Add in a co-applicant
If you hold a low credit score, you also can consider submitting an application for a loan with a guarantor or a co-applicant. You can apply for the joint loan with a close relative, spouse or friend having a good credit score, which leverages your score for approval. Moreover, with co-applicant or guarantor permission, you are required to provide some signatures and meet KYC formalities for the personal loan. Adding in a co-applicant is more likely to enhance your chances of personal loan approval and can fetch your affordable interest rate on personal loan.
∙ Pledge a security
While a personal loan is an unsecured kind of fund, you still can evaluate if there is any provision for security. The lender may reconsider and provide a personal loan for a low credit score if you provide collateral as security.
∙ Request for consideration with NH or NH on a credit report
If you have not availed of credit in the past 3 years or have an inactive report, it is marked with NH or NA sign. It indicates either no score or a lower score. In such cases, you can speak with our lender and request to consider your situation. The lender mat approves your personal loan at a higher interest rate.
What happens when you hold a low credit score?
When you hold a low credit score, it means you are a risky individual not willing to give you a loan. A score is primarily based on your past repayment behaviour, whether you have pre-closed or defaulted on any loan, what kind of loan you have availed and how much of your income has gone in repaying the loan.
So, now, if you hold a low credit score and still require a personal loan, you can find a few lenders who will be willing to lend you. However, they will charge a higher interest rate. Few lenders may charge an interest rate of as high a 24 percent p.a., which is very high.
How to avail of a personal loan when you have a low credit score?
While it might be a challenge, having a low credit score can get you a personal loan. There are many emerging fintech platforms & NBFCs that provide you with a personal loan but may charge a higher rate of interest.
How to select a lender when you hold a low credit score?
Always conduct in-depth research and view if they have creditworthiness. Do not fall prey to any scammer who steals your info and never disburses your loan. Few scammers might also provide you with great conditions, but they make you pay steep fees upfront.
Note that you are getting the correct rate of interest. Few lenders might endow incorrect pictures by showing their rates in terms of years and months. Thus, 30 percent p.a. is shown just at 2.5 percent per month. At the same time, a regular financial institution will charge just nearly 14 percent p.a., which is just 1.66 percent per month. When you calculate the interest over a long time period, it amounts to a considerable difference.
How to ameliorate your score?
If you are not at all in a hurry to avail loan, you can work on ameliorating your score instantly. This will make sure that you do not get an outright rejection for another loan application ever. Listed below are a few pivotal tips that can assist you in ameliorating your credit score.
∙ If you got an outstanding credit card balance, work toward repaying it off. Repay your credit card bills all the time in full. You should not resort to repaying just the minimum amount due.
∙ Stop spending on your credit card till you have cleared all your dues in full. After this, you can spend just the amount you are sure you can pay back in full each month.
∙ In case you do not hold a credit card and no such creditor is willing to give you one, opt for the secured credit card. It is a credit card against your fixed deposit wherein you can avail credit card limit of up to 80 percent of the deposit value.
