If you want to buy furniture or plan for the education of your child or marriage, personal loan can be used for virtually any purpose you want to. There are no restrictions on the purpose where you can use a personal loan. The documentation process is very fast in case of personal loan as it is an unsecured loan and therefore no collateral is required. Many of the banks have started giving in-principle approval to many borrowers in as quickly as 10 minutes and a few have also automated the entire process where a persona meeting the eligibility criteria will get the loan instantly.
How important is credit score in case of personal loan?
Your credit score will play a major role in your loan approval process. Higher the credit score, higher will be your chances of getting a personal loan. But you have a low credit score; it is highly likely that your application will be rejected out rightly even if you meet the income criteria. Lenders ask for a high credit score in case of personal loan because it is an unsecured loan. There is no collateral attached to your loan amount. So, if you default there is no way the lender can recover the money from you. Therefore, lenders insist on high credit score.
Must Read: Tips To Improve Your Credit Score
Your Credit score reflects your credit worthiness. Higher credit score means that the probability of you defaulting will be very low. Therefore, lenders (banks and non-banking financial institutions) will be more than happy to offer you loan.
There are three credit bureaus in India – Credit Information Bureau of India Limited (CIBIL), Equifax and Experian. All the three have different credit score calculating methods. The most popular among the three is CIBIL. The CIBIL score ranges between 300 and 900. The closer a person’s score to 900, higher will be his or her chances of getting the loan and vice versa.
Although different banks have different criteria, generally a credit score of above 750 is considered a good credit score.
Also read about Credit Cibil Report.
Higher credit score means lower interest rate
A high credit score will not only ensure that you get a personal loan but will help you in getting it at a lower interest rate. A high credit score gives you bargaining power. If you have a strong credit score, you can ask your lender for a lower interest rate. You can do the comparison of the various loan offers on Paisabazaar.com. Choose the one that is available at lowest rate of interest.
Things to Keep in Mind While Applying for a Personal Loan
- Before applying for a personal loan, it is better that you check your credit score beforehand with any of the credit bureaus. If you have a low credit score that below 700, you can work towards improving your credit score and plan for a loan after some time. Also, possible errors in your credit score can lead to rejection of your loan application. By checking your credit report in advance you can get the errors rectified before applying for loan.
- Ensure that you don’t apply for a loan to multiple lenders simultaneously. These will be recorded as hard enquiries in your credit report. You will be seen as a credit hungry person by the lenders and it will also negatively impact your credit score.Must Read: Factors that Affect Your Credit Score
- If you have a low credit score be ready to pay higher interest rates. People with higher credit score have a better bargaining power compared to those with a low credit score. Banks will charge higher interest rate as the risk involved in lending a person with lower credit score is higher.