The reason lenders look at your credit score when you apply for a personal loan is that it allows them to assess whether you are a high-risk borrower. The lower your credit score, the lower your creditworthiness is, and the harder it gets to avail a personal loan. If you do have a low credit score, however, all is not lost. There are still some things you can do to avail a personal loan.
- Have a co-applicant
If you apply for a joint loan and your co-applicant has a good credit score, then your personal loan eligibility increases. It’s on the basis of your co-applicant’s strong financial profile that lenders may approve you for a personal loan despite you having a low credit score. This is because the risk of lending money to you is reduced for the lender due to the presence of the co-applicant.
- Look at different lenders
When it comes to personal loans, all lenders have different personal loan eligibility criteria. So, it’s helpful to spend some more time researching your options. There are some lenders that will approve borrowers with a low credit score for a personal loan. But they will usually charge a higher personal loan interest rate. Hence, you should consider this only if you really need the funds.
- Have a conversation with your bank
If you have had a long-standing relationship with your bank, you can consider having a conversation with them about your credit score. If you have a low credit score due to genuine financial troubles in the past that you are now through with, your bank may consider giving you a personal loan despite your low credit score.
- Opt for a small loan amount
You can consider opting for a small loan amount with a short loan tenure and make sure to repay your Equated Monthly Instalments (EMIs) diligently. Not only will it be easier to be approved for a loan for a smaller amount, but this will also give you the opportunity to build a better credit score for availing loans in the future.
- Consider a secured loan
Personal loans are unsecured loans – there is no collateral involved. This is why the risk is higher for lenders when they give out personal loans as compared to secured loans. When you have a low credit score, it may be easier to get a secured loan where some form of asset serves as a collateral.
You can check your personal loan eligibility before you apply by using a loan eligibility calculator. Your credit score is one of the factors that determine your eligibility. Your income, job history, age, etc., also form an important part of the personal loan eligibility criteria. While it’s possible to avail a personal loan even with a low credit score, if you do not require the funds for an emergency, it may be best to consider delaying taking the loan. If you can first improve your credit score and then apply for a personal loan, the process won’t just be easier and less stressful for you but will also reduce your cost of borrowing.