When you apply for an instant cash loan, lending institutions measure your repayment capacity by checking your credit rating. This 3-digit number summarises your credit history, credit accounts, repayments, etc. Since unsecured loans are riskier for lenders due to the absence of collateral, lenders determine credit score before granting your loan application. While obtaining a loan with a low credit score is challenging, it is not impossible. Let’s discuss a few measures to implement when applying for a Personal Loan with a poor credit score.
The Relationship Between Personal Loans and Credit Scores
An individual’s credit score might be low for several reasons. These include the following:
- The score can be zero if you have never borrowed credit
- EMI payment defaults on existing loans
- Multiple dues on current loans and credit cards
- High credit utilisation rate
- High debt-to-income ratio
When you apply for a Personal Loan, the lending institution checks your credit score to determine your repayment capacity. They review your credit report to see how you have handled credit in the past. A high credit score is a sign of responsible credit behaviour, projecting you as a creditworthy borrower for future loans. However, a low credit score suggests credit defaults, discouraging lenders from approving your loan application.
Understanding the Credit Score
Your credit score determines your creditworthiness for new loans. Loan providers consider several factors when evaluating your loan eligibility for various credit products. The credit bureau records and maintains your credit score whenever you take a loan and make its repayment. An excellent credit score indicates financial stability, while a low credit score signifies repayment defaults in the past. Based on these results, lending companies measure your credibility and approve or reject your application. A decent credit score attracts easy approvals at lower interest rates.
Here’s a look at the different credit score ranges:
- 750 – 900: Excellent
- 650 – 749: Good
- 550 – 649: Fair
- 350 – 549: Poor
- NA/NH: No Credit History
Ways to Get Instant Cash Loan with a Low Credit Score
Unsecured Personal Loans do not require any collateral, guarantor, or security. If you fail to repay the loan on time, the lender cannot access your property to recover their balance. That is why they use your credit score as a parameter to evaluate your repayment capacity. However, credit score is only one criterion to determine loan eligibility. Here are a few alternate ways to get an instant cash loan with a low credit score:
- Find a Job With a Good Income
Lending institutions check your monthly income and financial obligations to determine loan eligibility and repayment capacity. Most lenders expect less than 40% debt-to-income ratio after meeting all commitments. People with high incomes and fewer obligations always find it easier to repay their EMIs on time. Therefore, look for a job with a good salary package.
Although a monthly earning of Rs 15,000 makes you eligible for a Personal Loan, a higher income may improve your approval chances despite a low credit score. Find other ways to augment your income, such as renting a property, joining a part-time job, earning from hobbies, etc.
- Look for a Personal Loan With No Minimum Credit Score Requirement
Many lending institutions offer Personal Loans without any minimum credit score requirement. Such loan providers have flexible terms and conditions to provide instant loans. Check the eligibility conditions of various loan companies to find one that does not require any minimum credit score requirement. For instance, Hero FinCorp has eligibility conditions related to the applicant’s age, work experience, occupation, monthly income, etc. Although a high credit score is preferable, they do not specify any minimum credit score requirement.
- Request a Smaller Loan Amount
Requesting a substantial loan amount with a low credit score poses a bigger risk for the lender. They want to avoid putting their money at risk by lending it to a borrower who already has a chance of default. When trying to get an instant cash loan with a low credit score, apply for a smaller loan amount to increase the lender’s confidence in approving your application. Request a loan within your budget and repayment capacity. If you apply for a smaller loan amount, the lender may consider your application and respond positively.
- Monitor Your Credit Score
Check your credit report every quarter, monitor any changes, and identify their reasons. Some ways to improve your credit score include the following:
- Check your credit report
- Clear your outstanding balances on all loans and credit cards.
- Borrow a debt consolidation loan to reduce your financial obligations.
- Avoid using your credit cards to reduce your credit utilisation rate.
- Diversify your credit portfolio with different types of loans and credit products.
Keep track of your expenditures, avoid overspending, and limit credit usage to improve your credit score.
- Indicate the Cause of a Lower Credit Score
Your credit score depends on your capability to handle finances. Avoid overspending, monitor expenses, and optimise your monthly budget to reduce your debt-to-income ratio. Pay off your existing loans with a debt consolidation loan. Approach the lender and explain to them the cause of your lower credit score due to inconsistencies in the past. A good income and repayment capacity for the new loan may improve your chances of getting a loan with a low credit score.
- Add a Co-Applicant in the Loan Application
If your credit score is low, add a co-applicant with a decent credit score to boost your eligibility. A co-applicant or guarantor with a good credit rating can help you get a loan faster with better rates and terms.
If you are looking for an instant cash loan but have a poor credit score, look for these ways to augment your chances of getting loan approval. Hero FinCorp offers instant loans of up to Rs 5 Lakh. Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader’s discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
Also Read: Solving the Problems of Credit Card Loan Cash Conversion
