Personal loans or rather unsecured loans are perhaps the easiest ones to acquire. They are not based on any collateral and can be used to serve a wide array of financial needs such as children’s education, medical emergencies or paying off debts.
When applying for a personal loan, quite a lot of factors are taken into consideration and the most important among them is your CIBIL or credit score.
Why is your credit score important in the loan approval process?
As already mentioned, personal loans are unsecured loans and aren’t based on any collateral. In such a case, it is quite risky on the lender's part to borrow money. This is exactly where your CIBIL or credit score steps in. Your credit score reflects your financial behavior and shows how creditworthy you are as a borrower.
A good credit score can make the loan approval process smooth and hassle-free for you. However, you must keep in mind that your credit score is not the only factor that determines your personal loan eligibility. Several other factors like your income, existing debt amount, etc. come into role.
What is the ideal credit score required to avail a personal loan?
There is no such magic number that can be denoted as an ideal credit score to get a personal loan. But a credit score above 750 is considered to be a good number. It can fetch you multiple loan options at reasonable interest rates and affordable tenure.
My CIBIL Score is low, how can I acquire a personal loan?
If you have a weak CIBIL score, there are a few things you can do to ease the personal loan approval process.
Stable income: If you have a steady flow of income, you can acquire a personal loan, even if your credit score is weak.
Good bank balance: A good bank balance can help in creating a good first impression and smoothen the overall loan approval process.
Tax payment: Paying back your taxes on time reflects your ability to make payments on time.
Lower loan amount: If you have a poor CIBIL score, you can still manage to get a loan of a lesser amount. Please note that the interest rates might be on the higher side under such circumstances.
Repayment history: If you repay your bills on time, you can build a good credit score, which, in turn, can help you acquire a personal loan.
Co-applicant: A family member or a close friend with a good CIBIL score can be a guarantor for your personal loan.
Some Common Frequently Asked Questions
Lenders generally don’t specify a minimum CIBIL score requirement for a personal loan application. But, a score of 750 and above is preferred by lenders for loan applications. This score says a lot about the creditworthiness of the borrower and the chances of lenders approving the loan application with this score increases.
There are a lot of lenders who might approve your personal loan application, despite you having a poor CIBIL or credit score. Although, the interest rates will be higher in these cases.
No, 550 is not a good credit score. A score between the range of 300 to 600 is not considered to be favorable by the lenders.
Some banks and financial institutions approve loan applications of individuals who are new to credit. But if it isn’t approved you can still go for collateral-based loans, which means loans based on financial assets such as gold, property, etc.
However, it is always recommended to build a good credit score as that can help you to acquire credit cards and loans easily.
When applying for personal loan there are quite a lot of things you must consider such as loan tenure, the amount of loan, etc. They are crucial as it will help you to determine your repayment capacity.
Yes, you can. However, the interest rates and the terms & conditions might not work in your favor.