Getting a loan in India in 2020 has become easier than ever before. If you have been considering getting a loan for some time now, one aspect that would have definitely come to your mind is your CIBIL score. Since you have been researching about loans for some time now, you are well aware of the fact that one of the first aspects that any lender will check when you apply for a loan is your CIBIL score, and if you have a low CIBIL score, your chances of getting approved is far less.
But oftentimes, as borrowers, we think that with a low CIBIL score, getting a loan in India is impossible, but that is only half the truth. Even with a low CIBIL score, you can still get the loan you need, and in today’s article, we will discuss exactly that. Let’s get started.
What Is CIBIL Score?
One of the first and most important aspects you need to understand is the meaning of the CIBIL score. Simply put, your CIBIL score is the credit score that has been assigned to you by the credit rating agency CIBIL. Your credit score is basically a numerical score that is calculated on the basis of your past credit behavior and is an indication of your creditworthiness.
In India, there are two main credit rating agencies or credit bureaus, as they are popularly referred to. The first is CIBIL and the second is Experian; both private organizations, by nature, have the government authorization to access and analyze your credit history to determine if you’re credit-worthy to get a loan. In order to calculate your credit score, four main factors are taken into account:
- The total number of loans you have taken in the past
- The total amount of debt you currently owe
- The number of EMIs you have paid in the past
- The number of missed payments, if any
Taking all these factors into consideration, your credit score is calculated on a scale of 900, both by Experian as well as CIBIL. Generally, it has been observed that a CIBIL score of 750 or more is treated favorably when you are applying for a loan.
What to Do If You Have a Low CIBIL Score?
In the event that you have a low CIBIL score, there are a couple of ways you can go about getting the loan of your choice. They are as mentioned below:
Show Records of Timely Payments
One of the biggest factors taken into consideration by credit rating agencies when calculating your credit score is the number of timely payments you have made in the past. If you have missed out on any payment or defaulted on any of your loans, it will have a major impact on your credit score. On the other hand, if you currently have a low credit score and want a lender to accept your loan application, the best way to move forward will be to show the lender that you have paid all your current existing debts on time, for example, your credit card bill, your home loan, your car loan, etc. If you have been making timely payments for your debts for some time now, it becomes easier for the lender to assess and subsequently determine that although you were not creditworthy before, the situation has now changed for the better.
Display Your Income Sources
While it is definitely true that most lenders will first consider your credit score, when you are applying for a loan, they also take other factors into account along with this. Another important factor that is often considered by lenders to assess your loan application is your current income sources. Thus, in order to increase your chances of getting your loan application approved, share your current bank statements with the lender. If you can display a stable and consistent income, along with bonuses and additional income from other sources, it will become easier for the lender to understand that you are financially well off and thus will be able to pay back your EMIs on time.
Apply Loan With an NBFC
Most borrowers are not aware of this, but if you have a low CIBIL score, the chances of getting your loan application approved are much higher through an NBFC as compared to a commercial bank. The reason behind this is simple; commercial banks cater their loan services to a mass audience and therefore receive several applications each day. To sort out these many applications and choose the best borrowers, the first barrier of entry they use is the applicant’s credit score, and thus, if you have a low credit score, almost always will a bank reject your loan application.
On the other hand, NBFCs or non-banking financial institutions cater to a much smaller and targeted audience. This means that the number of applications they receive on a daily basis is far less, and along with this, they also have a far more relaxed policy in terms of credit score and credit history. While banks give the highest priority to your credit score, NBFCs take into account a number of other factors when considering your loan application, and thus your chances of getting your application are much higher.
Additionally, it is worth noting that every time a commercial bank inquiries about your credit score, the credit rating agency treats it as a hard inquiry, and thus it might have a high impact on your credit score, and if your loan application is rejected, your credit score might even go down. On the other hand, a request for your credit score by an NBFC is treated as a soft inquiry, and thus the impact on your credit score will not be so significant.
Apply Loan With a Co-Borrower
Last but not least, one of the best tried and tested methods of getting your loan application approved when you have a low credit score is to apply with a co-borrower. If you are married, you can ask your partner to be your co-borrower, and if you are unmarried, you can ask either of your parents who are service holders to be co-borrower. The reason behind choosing a co-borrower is simply because having a co-borrower will instill trust in your lender that either of you will pay back the loan, and thus the chances of default will be significantly less.
But one of the most important aspects you need to consider in this stage is the fact that you need to choose a co-borrower who has a good credit score because otherwise, it will have a negative impact on your loan application.
It is true that having a low CIBIL score will make the process of getting a loan difficult for you as a borrower; however, it is worth noting that by following the right steps, you can still get the loan of your choice.
Additionally, also make a note of the fact that although your credit score is low at this point in time, make sure you actively work on it to improve your credit score for the future.
Thus go ahead, follow the steps mentioned in this article and apply with a lender you like best.