If you need a personal loan, lenders now look at your credit score. If you don’t have a credit history, banks may reject your loan application or offer you a loan with a higher interest rate if you don’t have one. People with a CIBIL score of more than 750 receive approximately 80% of loans. Anything less may jeopardize your ability to obtain a credit card or a loan.
When you apply for a loan, the lender will look at your credit report, which contains information such as payment history, personal and income information, past due amounts, and other information. Other eligibility characteristics, such as a credit score of 600 or higher, are taken into account by some banks when granting loan applications.
The Benefits of Having a Good Credit Score When Applying for a Loan
- Negotiation skills when it comes to interest rates and EMIs
- Your loan application will be approved by the majority of banks.
- Loans would be processed more quickly.
- You can apply with confidence to any bank of your choice.
- There’s no need to be concerned about making many loan inquiries.
For obtaining a loan, the best credit score is
You can apply for a secured or unsecured loan, and your credit score will play a key role in determining your loan eligibility in both cases. You might acquire a good credit score if you’ve had a steady financial journey with regular payments and no or small defaults. Maintain a CIBIL score of 750 to 900 by following financial management guidelines.
A CIBIL score of 0 or -1, or between 1 and 5, will exclude you from obtaining a loan because you may have a credit history of less than 6 months, resulting in insufficient data for banks to trust you with credit. Your loan application will be rejected if your credit score is 300 or above but less than 550 or 600.
The Drawbacks of Getting a Personal Loan with a Bad Credit Score
Even if your CIBIL Score is poor, you may need to apply for a personal loan right away if you have a financial emergency. However, there are some drawbacks to applying for a loan with a low CIBIL score.
- Rejection of the Loan Application: If the financial institution requires a CIBIL score of over 550, your personal loan application may be rejected. Rejection of loan applications can reduce your credit score even more.
- Lower Loan Amount: You may be authorized for a loan, but your credit limit may be limited. If you apply for a loan of Rs. 2 lakh but have a CIBIL score of 550, the lender may only sanction a loan of Rs. 1 lakh. This could happen regardless of how much money you make.
- If your loan application is granted, the lender may charge you a higher rate of interest. For example, if a person with a strong CIBIL Score gets a loan at 13% interest, you could be able to acquire one at 18% or higher with a score of 550. This is to make up for the fact that your CIBIL score is lower. Keep in mind that the rate of interest has an impact on the total cost of your loan. Fewer interest rates imply lower interest payments, and vice versa.
As previously stated, lenders may charge a higher interest rate and fee for a personal loan granted with a poor credit score. Before narrowing down your alternatives, you must first verify and compare the loan amount, fees, charges, and rates offered. After that, you can compare the fund provider’s reputation, service, client happiness, and other aspects to choose the best deal.