What is a loan?
A term loan refers to a type of credit in which a sum of money is lent to another party in exchange for future repayment of the principal amount or value. In many cases, the lender also adds interest or finance charges to the principal that the borrower must pay in addition to the principal balance.
Loans can be for a single fixed amount, or they can be available as an open line of credit up to a certain limit. Loans come in many different forms, including secured and unsecured loans, business loans, and personal loans.
How Does The Loan Work?
Here's how the loan process works. When a person needs money, they apply for a loan from a bank, company, government, or other entity. The borrower may be asked to provide specific details such as the reason for the loan, financial history, Social Security Number (SSN), and other information. The lender reviews the information, including the debt-to-income ratio (DTI) to see if the loan can be repaid.
Depending on the creditworthiness of the applicant, the lender either rejects the application or approves it. The lender must provide a reason if the loan application is rejected. If the application is approved, the parties sign a contract setting out the details of the agreement. The lender provides the loan proceeds, after which the borrower must repay the amount, including additional charges such as interest.
Loan terms are agreed to by each party before any money or property is changed or spent. If the lender asks for a guarantee, the lender specifies it in the loan documents. Most loans also have provisions for the maximum amount of interest, as well as other restrictive covenants such as the length of time before repayment is required.
RBI (Reserve Bank of India) authorizes several organizations in India to give credit scores to individuals to demonstrate their creditworthiness and risk factor. These credit rating organizations are unbiased and registered under the Credit Information Companies Act, 2005. Most scoring models for the credit score have a range between 300 and 850. Someone having a low credit score might find it hard to acquire a Personal Loan. Let’s explore ways to get a Personal Loan with a bad CIBIL score in India
- Rely on Online Lenders
Getting an unsecured loan is much easier now. People don’t have to stand in queues to acquire an unsecured loan. Physical lending institutions aren’t the only ones to offer unsecured loans to individuals. Online lending platforms or NBFCs that offer loans online can help you acquire a loan with a Low Credit score. Online lenders have a comparatively flexible application process for a Personal Loan. Individuals don’t have to visit the organization to get a loan.
- Choose a Lower Loan Amount
If someone has a Low Credit score, their loan application might get rejected by the respective lender. However, it may also happen because the loan amount is too high according to the credit score. If the loan applications often face rejection, try applying for a lower loan amount. Lenders find it risky to provide heavy loans to applicants with poor credit scores. However, they might offer a small loan amount even with a credit score below 700.
- Pay your Debts Timely
If you are to apply for a loan, pay as many debts as possible. By closing all debts, the credit score might take a boost. Since the credit score takes some time to reflect, you should clear debts before applying for a loan. Even if someone cannot repay the entire debt, try to reduce it as much as possible.
- Look for Pre-Qualification Options
By pre-qualifying for a loan, an individual can know the amount on offer. If the approved loan amount is known beforehand, an individual will choose that amount. Applicants can save their loan application from rejection by entering a reasonable Personal Loan amount.
- Complete your Loan Application
Applicants must complete the loan application to apply for a personal loan with a low credit score. An incomplete loan application will be rejected straightaway by the lender. Also, one should ensure that all the required documents are attached to the Personal Loan application to boost the chances of approval.
Summary
Getting a Personal Loan with a Low Credit score might be difficult but not impossible. Individuals can apply for a lower loan amount with a Low Credit score. Pre-qualifying for a loan helps individuals know the loan amount they can receive. Individuals can sometimes get a Personal Loan even with a Low Credit score with a digital lending platform.