What is a personal loan?
Are you in urgent need of money? A loan is basically that you need money for a particular purpose, and you need to borrow it. A personal loan means that you require the loan for a personal purpose, and that is why you do not need to particularly mention what is your exact reason for borrowing. It depends on the institution or bank lending and your personal choice that you wish to reveal the motive behind borrowing money or not. This money borrowed from a credit union, an online lender or a bank, you have to pay back in installments or fixed monthly payments, typically over two to seven years. Generally, these personal loans are unsecured in nature and are not backed by any collateral.
Your current financial needs are met through personal loans and you do not even have to pledge any security for availing it since personal loans can be unsecured or secured. On the other hand, a secured loan requires a particular type of collateral. Most of all, the lenders provide you great flexibility for using the funds as per your requirements.
- How much credit score required for personal loans?
A credit score can be anywhere between 300 to 900. In an ideal situation, you should have a credit score that is closer to 900 as this helps you in getting better deals and benefits on credit cards and loans. Normally, a credit score of 750 and above is preferred ideal too by most of the lenders. As per records, if the score is higher than 750, 80% of the loans are approved.
- Why is a credit score important for your personal loan?
There might be various occasions in your life where you need to access the additional money for fulfilling your either short or long-term goals. While the long-term goals could be either marriage or buying a home, whereas short-term goals could be just to go on a vacation or renovating your home. Be it anything, the purpose is not much of an importance to the lender in case of a personal loan. It is an ideal form of funding choice to fulfill these goals. But the financial institutions also do not give you a loan just like that, they do gauge your creditworthiness prior to lending you a personal loan. They would go through your credit report and know your credit score prior to advancing you money.
- A credit score is an indication of your credit health: For a lender, assessment of your creditworthiness or your credit health is very important for understanding your ability for repaying your debt. They are offering you a personal loan and they must have the assurance that they will receive their money back. When you have a high credit score, the lenders are certain that they will be getting their loaned amount back. On the other hand, if you have a low credit score, it raises a red flag to the lending individual or institution. The lenders might feel dangerous and not safe to lend you money when you have a poor credit score, which might, in turn, reduce your chance of being eligible for a personal loan. However, it will not deny your chances overall but the loan offered to you is attached with numerous terms and conditions.
- Get the loan approval immediately along with other benefits: Get ready to receive numerous perks when you have a good credit score at your end. Lenders would want to lend you money since your credit report show such a highly responsible behavior, this is a valid reason to boast if you have a high credit score. There are many advantages you can gain from it, mainly your loan process is approved very quickly. The various benefits of a good score for a loan process are that you get quick loan approval, you are eligible for a good loan amount, good interest rates and a quotation from a variety of lenders. In a very short span of time, your loan is processed and the loan amount is deposited into your account.
- To get competitive interest rates, compare and choose the best: There is a different level of confidence when you have a good credit score as you can assertively negotiate with the lending parties for bringing down the interest rate. Such a type of negotiation cannot take place if you already have a low credit score. There might be a fleet of lenders who would flood you in with offers of various interest rates looking at you as their prospective borrower. In such cases, the borrower can choose the lender who is ready with the best interest rates. On the other hand, if you are a borrower with a less score, you might have to settle with whatever interest rates are being offered by the lender. These rates will be higher comparatively when compared to what is generally offered by the lender.
- To receive a higher amount of loan: Since the lenders trust you a lot more with a decent enough credit score, they gain the confidence to loan you a high amount of money. Such a debtor is qualified for a loan amount that is higher than the rest. Furthermore, she/he is also competent to negotiate and demand a higher amount of loan, which is definitely not possible with a poor score. As a matter of face, lenders would offer a lower than usual loan amount to the borrower with a poor credit score.
- Reach out to several lenders: Ok! So, you have decided to take a personal loan, however, there are several lenders in the market that are willing to offer you a good deal, looking at you as their potential customer. Study their offers and shortlist accordingly. Browse through the various deals, learn about the benefits offered by them, and then decide which one is suitable for you. Various banks offer competitive interest rates on personal loans for attracting the customers to them. This pattern is seen when there is a high sense of competition. Choose the deal that offers you the maximum advantages with respect to tenure, fringe benefits, and interest rate. Many times, the lenders are also ready to offer a processing fee waiver.
- Connection between credit score and personal loan: There is a direct connection between credit score and a personal loan. The chances of personal loan approval are higher when the credit score is better. Usually, banks ask for a credit score of 750 or higher for personal loan purposes. This is because the banks are at a higher risk factor if the personal loans are unsecured. Even if there is a circumstance where the borrower is not able to pay back the loan, the only thing a bank can do is to file a suit against the borrower for recovering the amount. There is not much that can be done from the banks’ side apart from that. This is the prime reason why the credit score is so crucial with respect to personal loans.
- How can I acquire a personal loan if I have a bad credit score?
Well, definitely yes. There are many financial institutions today that offer you a personal loan even if you have a low credit score. However, they might keep the rules and regulations a bit strict for you such as charge you a higher interest rate and so on. You must ensure that you do appropriate research of the lending party and check if they are credible. Do not fall victim to scammers who take your data and never disburse your loan too. Some of the cheaters even make you pay some fees upfront by luring you with good terms and conditions. You might not even see them or your money again ever. Make sure that you are aware of the suitable interest rate that you are being offered. There are various lenders with the wrong intentions who will show you interest rates, not in terms of years, but months. In a way in which, 30% per annum is depicted at only 2.5% every month. When you compare such a rate of interest with a regular bank, you are only charged an average of 14%, which is actually 1.66% every month. These percentages might seem small, but they account for a significant difference when you calculate the interest over a long period of time. You need to beware of these scams and false tricks. On the other hand, there are various other valid options that could be availed for getting a personal loan with a low credit score such as the following:
- You can opt for a joint loan with your family member or spouse: Do not lose hope on getting a personal loan even if you have a low credit score. You can always turn to your trusted family member or your spouse who has a good credit score. Find somebody in the family who has a good credit score, so you can take a joint loan. This loan will be sanctioned based on both of your credit scores.
- Get hold of a guarantor: If anybody among your friends or family is ready to be a guarantor and they have a good credit score, there is a decent chance of your personal loan getting sanctioned, based on the credit score of the guarantor. Here, the lenders might not trust you, but they do trust the lender since they have a good credit score and dependable credit behavior. Hence, they provide you with a loan based on that.
- Collateral loan: Don’t lose hope if your personal loan application is not sanctioned! Plan B that you can opt for is trying to get a secured loan. The key point to remember here is that you need to have collaterals for a secured loan such as land, fixed deposits, gold and so on. In this way, you can get a loan even with a low credit score.
- Check for tie-ups between the lender and your employer, if any: When you are working with a reputed company, there are many perks that you get! There is a good chance that your firm may have a tie-up with the lenders as a segment of corporate relations. Therefore, the banks offer special facilities on loan, with respect to such tie-ups. Additionally, other favorable banking facilities are also provided and this could be extremely beneficial for your loan purpose.
- Keep your credit score under check: Be aware and alert regarding your credit score always. You must be aware of the position that you appear to a lender with respect to your credit health before applying for a personal loan. The credit score should be checked as you will understand better that where you stand in relation to your repayment and credit history. When you notice that your credit score is low, don’t apply for a loan immediately. Instead, take appropriate steps for increasing your credit score and when there is an evident increase in it, go for a personal loan. Keeping this patience will be advantageous to you in various ways.
- Apply to a few lenders only, and not to all of them: Shortlisting is the key! Once you realize what kind of perks are important to you in a personal loan, shortlist a few of the lenders that seem suitable to your requirements. This should be done very carefully as when you make multiple applications at one given time, multiple hard inquiries are triggered. The credit score can be negatively affected if there are numerous inquiries held.
Credit Bazaar assists you with all your credit queries right from credit cards to personal loans, to your credit score. Our team of professionals helps you to increase your credit score, get personal loans, and so on. Whenever you are stuck with a problem regarding your credit, Credit Bazaar has a solution for everything as it guides you, one step at a time, to improve your credit situation in a very relaxed and easygoing manner!
Contact Credit Bazaar and have faith in us completely for your credit health, as a good credit score can unlock all the things that you want in life!
For any queries regarding Credit Score improvement or Loan contact Credit Bazaar CR Arcade 2nd Floor, Opposite Delta Garden, Next to Shree Mahalaxmi Restaurant, Mira Road East, Thane: 401107