How To Get a Personal Loan Even with a Bad Credit Score!
You may already know that you have to meet certain eligibility criteria of lenders to get personal loans. These usually include sufficient income to repay the loan, a stable job/employment, meeting the age limit guidelines, and of course, having a good credit score. This is a three-digit score that indicates your creditworthiness. Financial institutions are more likely to lend to borrowers with high credit scores (700-750 or above).
Now what happens if you have a poor or low credit score? Make no mistake, it is hard to obtain a personal loan if you have a bad credit score. However, as they say, there is no harm in trying! Here are some tips on what you should do in this scenario.
Steps For Getting a Personal Loan with a Bad Credit Score
With a few strategic steps, you may be able to get personal loans with a bad credit score. Here are some of them:
1. Demonstrating stable income- You can boost your eligibility by showing proof of stable income. The higher your income to the minimum criterion, the better your chances. Also, if you work for a reputed employer/company, it also makes a better impression on the lender.
2. Lowering your debt-to-income ratio- The debt-to-income ratio denotes the proportion of debt to your income. You can reduce this by paying off credit card dues and other liabilities before applying. Maintaining a low ratio will improve your chances.
3. Joint personal loans- These loans allow you to bring a co-applicant on board. It may enhance your eligibility and chances of approval. You can apply with your spouse, parents, or siblings. However, your co-applicant should have a high credit score while applying.
4. Additional documents- Lenders may require extra documentation to sanction a personal loan if you have a bad credit score. Also, ensure that your documents are well-organized, including KYC documents, salary slips, and bank statements.
5. Choose a lower amount- In such scenarios, selecting a smaller loan amount may increase your chances of approval. It may convince the lender about (About What?)
6. Do some research- Some lenders may be willing to offer personal loans to borrowers with lower credit scores (550-600 or so). If you find these institutions, it may be more beneficial for your needs. It will help you finalize the lender since applying to multiple places will negatively impact your credit score and report.
Also Read: Considerations for Submitting a Personal Loan Application
If nothing else works, wait a while and improve your credit score if possible. Repay EMIs on time, pay off credit card dues, and scale down your liabilities for this purpose. You can also examine your credit report for any incorrect information or inconsistencies that may have lowered your score.
If that does not work, the final option is applying for funds elsewhere with some collateral/security like investments, insurance policies, gold, and other assets, subject to the lender’s terms and conditions.
Tips For Managing a Personal Loan with a Bad Credit Score Responsibly
If you get a personal loan with a bad credit score, you should focus on responsibly managing the same. Here are some tips that will serve you well in this regard.
- Do not miss the due date- Repay every EMI within the due date. Do not miss the repayment deadline by even a few days. You can set up automatic debits from your account for this purpose.
- Lower your other debts- If you have other liabilities, loans, or credit card dues, keep paying them off periodically to improve your credit score.
- Prepaying the loan- Make part prepayments whenever you get some extra money. It will boost your credit score and reduce your total interest costs and loan tenure.
- Prioritize loan repayment- Keep your EMI date close to your salary date. It will ensure smooth loan repayment before you start paying for your other monthly expenses and commitments.
Conclusion
These are a few tips to help you apply for a personal loan even when you have a bad credit score. Proper loan management is also necessary once you manage to obtain the funds. If you have not applied yet or have time, try to improve your credit score as much as possible. It will naturally benefit you since the lender may sanction the loan at a higher interest rate if you have a low credit score.
FAQs
1. What counts as a good CIBIL score for a personal loan?
A CIBIL score of 750 or above will increase your personal loan approval chances. Many lenders also accept scores of 700 or slightly less.
2. Do I have to provide any security for a personal loan?
Personal loans do not require any collateral or security. They are unsecured forms of credit.