Lenders of personal loans check a borrower’s credit score to determine whether they can repay the loan. A person’s credit score serves as a summary of their credit history, total amount borrowed method of repayment, and other criteria. These variables aid lenders in deciding whether or not it will be dangerous to grant a personal loan to the applicant. Most personal loans are unsecured, thus lenders cannot recover their losses by using any other assets. This is why when approving a borrower for a personal loan, a credit score comes first.
We frequently hear that having a low credit score makes it impossible to obtain a personal loan. This might not always be the case. Here are some strategies you can take to obtain a personal loan even if your credit is less than perfect.
Tips for Obtaining a Personal Loan Despite Having a Low Credit Score
Show proof that your income is sufficient to make timely EMI payments
Even with a low credit score, acquiring a personal loan may be simple if you have received an increase in pay or have an additional source of income. This is so that lenders can evaluate your application based on your income and repayment capacity. Even if you have a low credit score, the lender will still approve you for a personal loan provided you can show them that your employment and income are stable. On loans taken out with a low credit score, however, be ready to pay higher interest rates. Use a personal loan emi calculator to know your monthly EMI.
Reduce the Personal Loan Amount Applied
When you ask for a large personal loan and your credit score is low, the lender is taking a bigger risk. These symptoms are frequently interpreted by lenders as warnings of probable repayment defaults. However, if you apply for a smaller personal loan amount, lenders will be more willing to approve it because it will be much simpler for you to repay.
Use a co-applicant or a guarantor when you apply
If your credit score is low, you can still apply for personal loans with a co-applicant or guarantor. It is significant to remember that the co-applicant or guarantor must possess the required paperwork for finishing the relevant KYC processes and must sign documents as necessary. The biggest benefit is that getting personal loans is simple if the lender is confident about the co-applicants or guarantor’s source and consistency of income. It would be ideal if the co-applicant or guarantor had a higher credit score.
Check Your Credit Report for Errors
Your credit report could occasionally contain some mistakes. This typically occurs when the most recent information is out of current according to your records. Without your knowledge, such mistakes may negatively affect your credit score. As a result, it’s crucial to routinely check your credit report and make sure it’s accurate. You may have a higher chance of quickly obtaining personal loans as your credit score rises.
Importance of credit score
How creditworthy you are is determined by your credit score. A respectable credit score often falls between 300 and 900. The maximum creditworthiness is indicated with a score of 900. Your chances of having a personal loan application accepted are better the higher your credit score.
Your credit score is based on how well you’ve paid off all of your previous loans and borrowings. You can keep your credit score good by making on-time payments on all debts, including credit card bills, loan EMIs, etc. However, your score will drop if you miss a payment on a loan. Lenders typically reject borrowers who default on personal loans.