If you have been thinking about getting a personal loan for some time now, then chances are that you are aware of the fact that having a high or decent CIBIL score is one of the most important criteria you need to meet.
But what if you have a low CIBIL score?
This statement often propagates the myth that having a low CIBIL score means you will not get approved for a personal loan. But actually with proper research and following the right steps you can get approved for a personal loan quite easily even with a low CIBIL score and in this article we will discuss exactly that.
What Is CIBIL Score, and Why Is It Important?
One of the first and most important aspects we need to understand is the meaning of the CIBIL score and why it is so important in the first place. Your credit score is a numerical value that is assigned to you by the credit rating agency after taking into account your past credit history, which includes four main verticals:
- The number of loans you have taken in the past
- The total amount of loans you have taken in the past
- The total number of timely payments you have made
- The total number of payments you have missed
Assessing all these factors, the credit rating agency assigns you a score, and that is your credit score. In India, there are two main credit rating agencies, CIBIL and Experian, and both of them rate you on a scale of 900. It has been generally observed that you need to have a credit score of above 750 in order to get approved for a loan easily.
Why Is It Important?
Now comes the question, as to why your CIBIL score is such an important vertical to consider for your loan application. The reason behind this is simple; since most personal loans in India are unsecured in nature, the lender will use your CIBIL score to determine whether you are a trustworthy borrower or not, as having a good credit score is a representative of being a responsible borrower and vice versa.
How to Get a Loan With a Low Credit Score?
Now let us understand how exactly you can get a personal loan with a low CIBIL score. Mentioned below are some of the most significant steps you can take:
- Consider Applying for a Lower Amount
One of the first and immediate steps you can take is to apply for a lower loan amount. In India, most lenders follow a rule of thumb which dictates that the EMI you are scheduled to pay every month should not exceed 50% of your net monthly income and thus applying for a lower loan amount will not only reduce your financial burden with immediate effect but also increase your chances of getting approved sooner.
- Apply With a Co-Borrower
The next step you can take in order to get your personal loan application approved with a low CIBIL score is to apply with a co-borrower. This is a process wherein you request either a family or friend to apply with you so that both of you can divide the loan equally. However when applying with a co-borrower make sure that your co-borrower has a higher credit score and is willing to pay their share of the EMI every month, as failing either of these criteria can further deteriorate your chances of getting approved.
- Show Your Income Proof
Another great method to ensure that you get your loan application approved quickly is to show income proof to your lender. The idea behind this step is simple; when you have a low CIBIL score, the lender assumes that you are a risky borrower and thus chances are that you will not be able to repay the loan on time. But if you can show to the lender that you have a consistent and stable source of income, then it will become much easier for the lender to both assess your application and subsequently approve it.
Some documents you can rely on to display your income proof can be your ITR returns, dated bank statements, proof of payment to other loans, and salary slip from your employer. Used correctly, all these documents will hold good in front of the lender.
- Close All Your Existing Loans
The next method you can try is to close all your pre-existing loans before you go ahead and apply for a new one. If you have other loans running, it increases the chances that you will not be able to make the repayments on time, thus increasing the risk for the lender.
However, if you can close all your pre-existing loans, wait for some time, and then apply for a new personal loan, you can get your application approved even with a low CIBIL score. Additionally, please take care of the fact that most lenders will charge you high foreclosure rates if you approach them to pre-close your loans, and thus you need to take this into account before you proceed.
- Resolve Errors in Your Credit Report
Although the occurrence of this is rare, it might be the case that there are mistakes in your credit report. And although these mistakes might look insignificant superficially, they have the potential to cause significant damage in the long run. Thus if you feel that you are a responsible borrower and yet you have a low CIBIL score, then resolving these mistakes will solve the problem.
However, please note that the improvements in your credit report will not be visible immediately, but will take at least 4 to 6 months to reflect, after which your credit score will improve.
While it is true that getting a personal loan with a low CIBIL score is difficult, it is not entirely impossible. By following the methods outlined in this article and making smart decisions, you can get your loan application approved.
So go ahead, choose a lender of your choice and apply for the personal loan you require, today.