Since a personal loan is unsecured, you do not need to deposit collateral to the lender. However, the lenders check your credit score for processing your loan request. This is done to ensure that you have the ability to repay the loan amount. There are other eligibility criteria to fulfil, but having a good credit score from either of the credit buraus like CIBIL, Experian, CRIF is the most important for getting your loan application approved.
Why is credit score an important determinant for Personal Loan Approval?
A personal loan is useful to fulfil your financial needs like home improvement, children’s education, medical emergency, family wedding, vacation, etc. Before extending the personal loan amount, the lenders are wary of the borrower’s repayment ability. Being an unsecured loan, the lenders ensure to check their ability to repay the borrowed sum before approving the personal loan application.
The credit bureau score is an important three-digit number that helps lenders assess your default risk. If you have a high credit score, it means that you have been a responsible borrower in the past and have paid your dues every month on time. However, the lower score reflects your risky credit profile and low creditworthiness in the eyes of the lender. It is important to know what is the best credit score for loan.
Ideal Credit Score for Personal Loan
A credit score remains in the range of 300 to 900. The higher your score and the closer it is to 900, the higher the chances for quick loan approval. Generally, most lenders consider 750 as the best credit score for loan. You can get a personal loan easily if you have a score of 750 and above. It will also help you get a better deal on loans and credit cards, such as an attractive interest rate.
Personal Loan for A ‘Low Credit Score’
Most lenders do not approve a personal loan application with a CIBIL score of less than 650. Since the lender is unsure whether the applicant is financially stable and will repay the loan timely, the lenders hesitate to approve personal loans for a low credit score. Even if the lenders approve your loan request and offer you the loan amount, they charge high-interest rates. Hence, before taking a personal loan with a bad credit health, do not check the terms and conditions mentioned in the document.
Personal Loan for A ‘Critically Low Credit Score’
Getting a loan for a critically low credit score of less than 550 may still be possible. However, you will find only select lenders. Also, be ready to pay a whopping interest rate. Longer processing time due to several additional checks is another drawback. Connect with Due Factory and begin your credit repair journey to experience ultimate financial well-being.
Personal Loan for ‘No Credit Score’
Getting a personal loan without having a credit score is also not impossible. Many lenders offer personal loans to borrowers new to the credit world. Maintaining a credit score and increasing your loan approval chances is advisable.
How to Increase the Chances of Personal Loan Approval?
The credit history and credit score matter the most in the approval of your loan application. Some ways help to increase your credit score and reach best credit score for loan are:
- Pay Outstanding Dues
Repay all outstanding dues, taxes, and debts. This will help you build a better credit score. Though it may take some time, it will help you get a personal loan.
- Making Timely Monthly Payments
Pay your credit card bills and loan EMI’s on time. Non-payment or late payment of credit card bills and loan EMIs significantly hampers your credit score.
- Low Credit Utilization
Keep your credit utilization on your credit cards low (less than 30%) to raise your credit score. Also, try to clear the complete outstanding balance every month rather than paying just the minimum amount.
- Dispute Errors
Sometimes, errors in the credit report can jeopardize your good credit score. Hence, it is important to pull your credit report, monitor it, and check for any errors in the report. Due Factory provides you with a free credit report. If you find a delinquency in the credit report, you must write to the concerned credit bureau immediately. Take time to remove old disputed amounts that are harming your credit score. Instead of carrying an unresolved dispute, seek Due Factory support and boost your credit score.
For detailed insights into “how to improve your credit”, refer to our blog How to Fix Your Credit in 7 Easy Steps.
Wrapping up
There are many benefits of having a high credit score and a clean credit report, including faster and easier loan approval. Credit score requirements for personal loans are different for different lenders. While some offer personal loans to borrowers matching best credit score for loan, some lenders approve loan requests from borrowers with bad credit scores.
If you are unsure about your loan request getting approved, the best thing to do is to build your credit score. This will improve your chance of qualifying for a personal loan, and that too at a low rate. Your credit score won’t increase overnight, but good financial habits will help augment the score gradually. For better results, partner with Due Factory. We help you with credit repair support, establish good financial habits, provide deep insights into your credit health, and offer the best financial recommendations.
FAQs
1. What is the minimum credit score needed for personal loan approval?
Ans. Many different lenders grant personal loans. They may have their criteria. However, most banks offer personal loans at a 700+ credit score. The banks may lower their credit score criteria and compensate the same by charging a higher interest rate from the customer.
2. Can I apply for a personal loan without having a credit score?
Ans. The banks may be reluctant to offer you a personal loan without a credit score. Some cooperative banks or private lenders may offer you a personal loan on the recommendation of a family member or friend. Build up a good credit score and secure a loan easily.
3. Can I get a personal loan if I have a low CIBIL score?
Ans. In case of a low CIBIL score, you might get a loan after a long wait. Also, you may have to pay a higher interest rate on the loan amount. Try to improve your score before applying for a personal loan and avail of loans at a competitive interest rate.
4. How much loan amount can I get as a personal loan?
Ans. The personal loan amount and term depend on the lender. The loan amount can be between Rs. 10,000 to Rs. 30,00,000. You can choose one of the flexible repayment term options at your convenience—the same ranges from 12 to 60 months.
5. How is the rate of interest on a personal loan determined?
Ans. The interest rates for a personal loan depend on the loan amount, the borrower’s credit score, the lender’s policies, special offers, etc.
6. How long does it take for a personal loan to be approved?
Ans. The approval time on a personal loan depends on the borrower’s credentials, like credit score and the lender’s processes. Most banks have built the internal capability to approve and disburse your loan in as few as a few minutes to within three days if you complete all docs and your credit score is high.
Note: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.