How to get a personal loan despite a low CIBIL Score?
Personal loans for low CIBIL score
Ajay was happy and feeling proud. His daughter had recently got shortlisted for admission to one of the best schools in the town. She was about to take first step towards securing a bright future which Ajay had started dreaming of the day she was born. He now required to pay an upfront payment of Rs. 1 lac to secure the admission.
He did not have the amount readily available with him. So, he walked to his bank and applied for a personal loan.
After 3 days, he followed up with the bank only to know that his application has been rejected.
On inquiring the reason, he was told that he had a low CIBIL score.
He was quite sad. Like most of us he did not know about CIBIL and was completely unaware of his low CIBIL credit score or the reason behind it.
Ajay’s is not alone in facing a loan rejection. Several other people face the same ordeal when accessing loans to fulfill one or other important need that they have.
As per the RBI guidelines, all financial institutions such as banks, NBFCs and credit card issuers have to regularly submit the data pertaining to repayment of loans and credit cards to CIBIL and other three credit bureaus – Experian, Equifax and Highmark. All four credit bureaus use this data to provide their own credit scores reflecting the creditworthiness of borrowers. CIBIL is one of the earliest credit bureaus and hence, enjoys higher acceptance.
A CIBIL score ranges from 300 to 900, with 900 being the maximum. Since banks still follow traditional method of credit evaluation, they heavily rely on CIBIL score to provide personal loans.
A person who has not taken any loan or credit card in the past will have -1 score, which means this person does not have a credit history.
Hence, CIBIL Score becomes a key parameter in deciding whether or not you will get a loan.
Do you know? Banks typically approve loans which have CIBIL credit score of 750 or more.
Image Source: CIBIL, Apr 06, 2018; The number in the blue background is the CIBIL score.
Ajay discovered that his CIBIL Score was just 650. That was way below than required.
His bank manager also told him that with this score, it would be difficult to get a loan from any other bank too.
He had many questions in his mind.
“Why is my credit score low? I don’t even use credit cards anymore.?”
“How can I improve this score quickly?”
“What do I do now to pay the school admission fees?”
Reasons for low CIBIL score
Well, there could have been several reasons for a low credit score. Some of the key ones are as follows:
1) Missed or delayed payment on any loan or credit card: It is a borrower’s responsibility to pay the installments or credit card dues on time. It has been well demonstrated that delayed or missed payment shows lack of ability or intent on borrowers’ part to repay loans. Such borrowers usually default on loans and hence, are avoided. Therefore, one should make timely repayments.
2) Payment of minimum amount due on credit card: This is one of the most harmless looking reason for low CIBIL score. On one hand banks themselves give this option while on the other CIBIL penalizes for such behavior. Remember that interest rate on such facility ranges from 30% – 50% and banks love such customers. Idea behind this option was to allow credit card holders to tide over current financial stress and pay later without defaulting. However, if used regularly, this shows that the person doesn’t have financial ability to repay the amount as he is willing to bear such a high interest rate. Hence, he is not an ideal candidate for future loans.
3) Multiple loans or credit card enquiries: If you simultaneously apply for loans with multiple lenders or apply for credit cards with multiple banks, it shows that you are under financial stress. This adversely impacts the CIBIL score.
4) High utilization of credit limit: If the spend on your credit card frequently reaches the credit limit, it shows that you need to work on financial discipline and improve it. CIBIL considers this as a significant negative signal and penalizes your CIBIL score.
5) Type of Loans: You should have good mix of secured and unsecured loans. Secured loans such as home loans, car loans, loan against property etc. are backed by assets mortgaged by you i.e. if you do not repay, a lender can liquidate those assets to recover the loan. Unsecured loans such as credit card due, personal loans or signature loans are the ones where you have not provided any asset as collateral. You should have some secured and unsecured loans. Having just one type of loans adversely impacts the CIBIL score as it shows the person’s inability to get the other loan.
6) Wrong reporting by the banks or NBFCs: Another reason, though uncommon, is wrong reporting. You should periodically pull out your credit report to understand if there are any errors. This is because, if you require a loan urgently, an error in your credit report will hamper your chances to get a loan. It will take a month or so to reflect the change in your credit report.
Except for wrong reporting, it is not possible to improve your score immediately. It can easily take 6 months to a few years to get your credit score back on track.
In Ajay’s case, he had settled a credit card a few months back. This was the main reason for low cibil score.
Personal Loans for low CIBIL score
Ajay didn’t have so much time. For him, arranging money for his daughter’s school fee was the most important as of now.
Since the doors of the banks were closed to him due to low CIBIL score, he didn’t want to waste any more time. He was actively looking for other sources for the loan.
As he searched the internet, he came across the alternative loan platform of peer to peer lending.
Individual borrowers and lenders come together on this platform to take and offer loans. He found this interesting.
The platform screened the borrowers on various parameters and allowed them to set an interest rate that they were willing to pay for the loan amount.
The platform also guided the borrower on minimum benchmark interest rate based on their detailed credit analysis and prevailing market conditions.
The lenders would then connect with the borrowers and on mutual agreement, the loan would be made.
The repayments are made in monthly installments.
Ajay decided to try this out. All it required was to sign up and provide some basic details about himself.
The best part was that the screening went beyond the CIBIL credit score and evaluated 100+ other parameters such as financial behaviour, future financial prospects, education, demographics, socio-economic conditions, etc.
This brings out a holistic profile of an individual. Through this model a proprietary credit score is generated by the system, which then enables even someone like Ajay, who has a low CIBIL score, to access a loan.
Ajay provided all the required information and submitted his loan requirement of Rs. 1 lac for 1 year. His personal loan request was approved at 18% p.a. interest rate.
The very next day he received offers from multiple lenders.
Ajay was glad. The platform took care of the entire process and arranged the loan agreement between Ajay and the lenders. As soon as the amount arrived in his bank account, he paid the school admission fees.
Ajay is happy that he could get his daughter admission to one of the best schools in the city. He wants her to have the best possible education.
By the way, the platform Ajay accessed was that of i2ifunding.com.
Do you want to know more about peer to peer lending platform i2ifunding.com?