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When you approach lenders for a personal loan, the first thing they usually do is check your credit score. Your credit score is a score of your credit history, the amount of credit availed by you, your repayment abilities, etc. Since personal loans are collateral-free or unsecured loans, lenders will evaluate if lending to you would be a risky proposition and a credit score will help them determine that.
While it is a general notion that people with low credit scores cannot get a personal loan, the truth is that there are many lenders who offer personal loans for people with low credit scores. Some of them have been listed below:
The way bank and other financial institutions can know your credit worthiness is through your CIBIL (Credit Information Bureau Limited) score. It a number that is associated with you and tells the bank how responsible you are with your loans and credit cards. The CIBIL score is one of the prime parameters used to determine the approval of a loan. The CIBIL score was India’s first ever credit rating system and is recognised by all the banks as an authority on an individual's credit rating.
How the CIBIL score system works is similar to the credit score systems found in many countries. You are assigned a score, a number, between 300 and 900. The number that you get is a result of the information that the banks forward to CIBIL. This information is a collection of your repayments of Personal Loans, home loans, vehicle loans and credit cards. If all your payments are made on time, then you can hope to have a good score.
If you skip payments or fail to pay the credit back in time, it could lower your credit rating which would, over time, would make it difficult for you to get approved for a loan. CIBIL is also going to include utility bill payments which means that your score could improve or deteriorate depending on when you pay your phone, electricity or water bills.
Since CBIL scores are supposed to be an indicator of your financial habits, the score changes based on how you handle your loans and credit cards. These are some of the factors that can have a negative effect on your CIBIL score.
While banks may not tell you what CIBIL score makes you a perfect candidate for a personal loan, they do say that your credit score will play a part in the approval of your application for a loan. If your score is below a certain number, then chances are that you may not be approved for a loan.
Even if you are approved, the interest rates offered to you may be higher than those offered to someone with a good score. While most banks in India may be vary of providing loans if credit scores are low, there are private finance companies that may offer personal loans for low CIBIL scores.
If you happen to have a CIBIL score that is not good, then there is no reason to lose heart. There are things you can do to improve that score. Here are some tips that can help you improve your credit rating.
When you have a poor credit score as indicated by your low CIBIL Score, it sure will be a challenge to get a personal loan. However, it is not impossible. Despite your low score, many lenders will be ready to offer loans to you but they may charge a slightly higher rate of interest. Many fintech platforms and NBFCs these days offer personal loans despite a low credit score and some of these have been listed below:
Do not forget to shop around before you pick a lender and when you manage to get a personal loan, ensure that you make the payments regularly so that you can gradually build up your credit score.
If you have a score between 600 to 750, you can approach banks or financial institutions for a personal loan. However, since the score is neither good or bad, lenders will be cautious and may carry out additional credit checks before sanctioning a loan to you. They may also charge you a higher rate of interest.
You can check your CIBIL or credit score on the BankBazaar website under the Free Credit Score section on the homepage. You can also check your score on the official website of CIBIL at www.cibil.com. Once you visit the site, you will be asked to enter your personal details such as name, phone number, email ID, etc., after which your score will be displayed to you.
If you have neither borrowed from any bank or financial institution nor owned a credit card, you will have no credit history which will be indicated by a –1 score. Some lenders may lend to you as a first-time borrower because they will not be able to gauge the risk.
A CIBIL score between 750 to 900 is considered a good score and most lenders will approve your request for a personal loan. Lenders will also be happy to lend to you at a lower interest rate, and may even offer discounts on pre-closure charges and processing fees.
Having a good CIBIL score will give lenders the confidence to sanction your loan request. If you have a good credit score, you can negotiate with the lenders to give you a good deal on interest rates, processing fees, etc. You may even get pre-approved offers which will let you avail a personal loan instantly with minimal documentation.
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