In the present day world, our lifestyles are such that we love to eat money, sleep money, and eventually conquer money! Herein, it doesn’t come as a surprise that a large number of banks, Non-Banking Financial Companies, and online lending platforms are offering quick and easy Personal Loans.
A Personal Loan comes with incredible benefits such as easy availability, quick processing, fast disbursal, freedom of end-use, and much more. However, the loan facility is not without a limitation, i.e., they are only available to those individuals who have a high CIBIL Score of at least 650 or more, as is the case with ICICI Personal Loan, and other leading Personal Loan products.
The CIBIL (Credit Information Bureau (India) Limited) score is indicative of the financial discipline and the repayment ability of the borrower. The higher is the CIBIL Score, the better is the profile of the borrower for a bank loan. A high CIBIL Score not only guarantees swift loan approval but also ensures a favourable rate of interest.
But what if you have a low CIBIL Score? Can you still get a Personal Loan? And more importantly, can you get a Personal Loan to improve your CIBIL Score?
We will find out answers to all these questions, but first, let us understand why you have a low CIBIL Score. Below mentioned are some of the most prominent reasons that result in a low credit score.
If you do not pay your Credit Card bills in full and have accumulated a significant balance over time, it may result in a poor credit score.
Every time you apply for a loan or a New Credit Card, your chosen bank runs a check on your credit score, and if the bank is required to process your application, they conduct a hard check. Multiple hard inquiries in a short period of time are perceived as credit hungry behaviour on your part, and therefore results in a blow on your Credit Score.
Using over 30% of your Credit Card limit, month after month, over and over again, indicates your poor financial discipline as well as your high dependency on credit. This leads to a lower Credit Score.
Your past credit behaviour and credit history primarily determines if you are a responsible borrower or not. If you have frequently been delaying the loan payments in the past, the chances are high that the lender would consider you as a risky prospect.
Now that we know some of the reasons for your low Credit Score let us take a look at some of the corrective measures, you can take to improve your score. These include:
Considering the Eligibility Criteria for Personal Loans, it may seem counterintuitive to apply for a Personal Loan as a measure to improve your credit score. However, if done tactfully, not only will you be able to apply for and get approval for a Personal Loan, but can also improve your score over time.
Let us understand how:
While Personal Loans are usually unsecured, when you have a poor Credit Score, you can opt for a secured Personal Loan option. Here in the place of the amount that you take on credit, you can pledge collateral to the bank in the form of shares, bonds, gold, land, or any other such asset. This will reduce the risk proposition for the lender and will help you get the much-needed approval on your loan application.
Here, however, you must remember that you will need to furnish proof of ownership of the asset that you wish to put up as collateral. Once the loan is approved and disbursed, make sure to pay each and every EMI on time. Consistently doing so over a span of 6-8 months will reflect your financial discipline and consequently will result in an increase in your CIBIL Score.
If your CIBIL Score isn’t good enough to warrant approval on your Personal Loan application, consider applying with a co-applicant who has a respectable score. Doing so will ensure that your Personal Loan application gets approved and that the interest rate levied on the loan is reasonable.
In this case as well, once your loan is disbursed, ensure timely repayments of the EMIs, and within 6-8 months, you will witness a considerable improvement in your Credit Score.
If you have a Life Insurance Policy from LIC, you can avail of a Loan Against this Policy from LIC or from one of the leading banks of the nation. Contrary to popular belief, when you opt for this alternative, you are not required to cancel or surrender your policy to avail of the loan amount. All you need to do is pledge the policy until the end of the loan tenure, and you can avail a loan amount of up to 90% of the surrender value. In this case, the lender wouldn’t mind your low Credit Score. Besides, you can avail of this loan at a fairly low-interest rate, ranging from 10-12% p.a!
Even in this case, timely repayments towards the loan will lead to a gradual but steady increase in your CIBIL score.
Once your score reaches the desired level, you can revel in the perks of getting swift approvals on your Personal Loan applications. Moreover, you can also enjoy Personal Loans at a comparatively lower interest rate. For instance, ICICI Personal Loan Interest Rate for eligible individuals with a high CIBIL score is as low as 11.25% per annum.
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