Nitin Lokhande, aged 35 years and resident of Mumbai, was over joyed when he came to know that his daughter got through her nursery admission in their area’s top-grade school. Performing all the admission formalities, such as submitting admission and annual fees, buying school dresses, paying transport fees, etc. made him utilise a large portion of his savings. It was only a week for his daughter’s admission, misfortune struck him, as his father met with a road accident. Nitin’s father went under a knee surgery which was well performed by surgeons. Before his father got admitted, Nitin was well aware of the medical expenses that will hit hard on him, as he forgot to renew his father’s health insurance policy. Therefore, he was not left with much options besides applying for a personal loan, as his saving were already exhausted.
Unfortunately, his bad credit score just seemed like rubbing salt in the wound, which he realised after his loan application got rejected. He was dejected when he came to know that his low CIBIL score is the prime reason for loan rejection. However, he paid the hospital fee by borrowing money from one of his relative which he never wanted to. Just like Nitin, there are many people who face loan rejection on daily basis because of their low credit scores. No one wants to face loan rejection in times of financial emergencies. Therefore, its better to be aware of these important factors that may result in any type of loan rejection.
What is Credit Score?
Credit score is a 3-digit numeric that represents the creditworthiness of an individual. Credit score is generated by the Credit Bureaus from the financial data provided to them by most of the leading banks, government organizations and NBFCs (Non-Banking Financial Companies), which is calculated on the basis of the credit handling ability of an individual or organization.
Understanding TransUnion CIBIL Score
TransUnion CIBIL Limited, formerly known as CIBIL (Credit Information Bureau (India) Limited) is a credit information company operating in India. Founded in 2000, the bureau maintains credit records of over 600 million individuals and 32 million businesses. A CIBIL score ranges between 300 to 900, with any score close to 900 is considered good. Currently, there are four leading credit bureaus who operate in India, such as TransUnion CIBIL, Experian, Equifax and CRIF High Mark. Credit score generated and provided by TransUnion CIBIL is highly considered by lenders nationwide. Being the earliest of all the credit bureaus, TransUnion CIBIL enjoys higher acceptance. According to TransUnion CIBIL, approximately 79% of the loans get approve, if your credit score is above 750.
Can Individuals with Low CIBIL Scores Get Personal Loans?
Yes, low credit score does not mean that you are not eligible to get loan, it just makes loan approval process a bit difficult. People with low credit score tend to get loan at higher interest rates and generally require more effort in getting loan sanctioned. A personal loan is an unsecured loan which means it does not require a collateral or guarantor. Sometimes it becomes difficult to secure a personal loan with bad credit. Almost all of the lending institutions check your credit history or credit score before making any decision, so a maintained or balanced credit score is what lenders consider.
Getting Personal Loan with Bad Credit Score
The process for getting a personal loan is much easier than for any other type of loan. Usually, you do not need to provide any collateral to get a personal loan. Many banks and financial institutions also allow personal loans to individuals with bad credit history or lower CIBIL scores.
Some of the available options which may help to get a personal loan despite a low CIBIL score are as follows:
a) Loans Against Current Income: If the borrower’s income has increased, it means that loan repayment chances are better. In this case, lenders do sanction a personal loan despite his/her bad credit score. In return, banks charge higher personal loan interest rate from borrowers who maintain low credit scores. Applicants need to submit their income proofs to avail personal loan, including bank statements, salary slips, and income tax returns.
b) Collateral Loan: If by any chance your personal loan application gets rejected, you may try to get a secured loan instead. Collateral such as gold, fixed deposits etc. can be used to avail a secured loan even with a low CIBIL score.
c) Corporate tie-ups with Lenders: Working in a reputed and renowned organisation has been always beneficial. There could be a possibility that your company might have some tie-ups with the lenders, as a part of their corporate relations. This corporate tie-up could fall in your favour, as several listed banks may help you in getting a personal loan at lower interest rates despite the poor credit score.
d) Adding a Joint Loan with your Spouse or Family Member: Keep a check on the credit score of your family members as well, as if by chance you maintain a low score then any of your family member with good credit score may help you in taking a personal loan. In this scenario you can take a joint loan with the member who has the highest score.
e) Adding a Guarantor: If you are able to find a guarantor among your family members, relatives or friends who have a good CIBIL score, then there is an increased possibility that you shall get a personal loan based on your guarantor’s credit score.
Other Sources: NBFCs (Non-Banking Finance Companies) are also considered by various individuals to take personal loans, but the only fact to remember is that the interest rates offered by NBFCs are much higher as compared to banks.
Although a good CIBIL score is definitely required to get a personal loan, these alternate options mentioned can help you to get a personal loan despite a low CIBIL score.
Reasons for Low CIBIL Score:
- Multiple loan applications.
- High Utilisation of credit limit.
- Payment default of any loan EMIs.
- High percentage of unsecured loans.
- No credit history.
- Too many loan rejections.
- Numerous credit card requests.
Therefore, considering and analysing all the issues and possible reasons related to personal loan, one can easily understand the importance of maintaining a high CIBIL score. Visit Paisabazaar.com to check your CIBIL score absolutely free or calculate your personal loan EMIs from its Personal Loan EMI Calculator. As it may help you not only identify your credit score and approx. monthly EMI that you may have to pay as per your loan requirement, but will also provide you available personal loan options as per your income.