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“Maintain a CIBIL Score of 750+ and be credit confident!,” reads an advertisement by the company TransUnion CIBIL. It is easier said than done, especially now, as people are losing jobs and businesses are getting affected. This has led to a cash shortfall in many households, and more and more people are opting for personal loans for medical emergencies and to meet their daily expenses.

“Liquidity is a major problem during the pandemic. Although expenses have reduced owing to lockdown but at the same time, cash inflow has also suffered. To fulfill certain needs, investors lookout to redeem a part of their investments, such as fixed deposits and mutual funds,” pointed out Manish Hingar, Chartered Accountant and founder, Fintoo (wealth and tax advisory online platform).

As personal loan comes under the unsecured loan category and the lender doesn’t ask for any collateral against the personal loan, the eligibility criteria for personal loans are a bit strict as compared to secured loans. There are a number of factors that the lender takes under consideration while evaluating a loan application.

These parameters include the age of the applicant, his/her occupation, annual income, repaying capacity, and details temporary/permanent residence. The other important parameters are the individual’s business/employer’s detail and his/her credit history/score.

That said, it is not easy to avail of personal loans especially if your credit score is low. A credit score is an important ingredient in the application process. It gives lenders an indication of how you have performed on your loans in the past. Usually, anything that comes in between 650 to 699 is considered average, but anything below 649 is a poor CIBIL rating which may either get rejected by the lender or he will be agreed to offer a loan at a very high-interest rate.

“Your credit score reflects your creditworthiness. Having a good credit score will help you in many ways while availing of personal loans. Getting an attractive and lower interest rate is one major benefit,” said Rohit Sen, co-founder and CEO, NIRA.

Way out?

A person with a low credit score may opt for a guarantor probably with a sound credit standing of his own. They also have an option to opt for a secured loan by way of depositing any collateral security with the lender.

“A better option would be to either pledge an asset or use a guarantor. That way you’ll be able to borrow at a low cost and rebuild your credit score by making timely payments,” said Sen. Further, a person with a low credit score also has an option to apply for a joint loan with the joined holder account who has a better and sound credit history.

NBFCs

Today, there is also a higher chance of getting a loan from the Non-Banking Financial Companies (NBFCs). However, one needs to be careful as the rate of interest on such loans would be high.  That said, many Fintech companies are now also using a wider set of data to evaluate borrowers without credit scores who typically are unable to get loans from banks.

Nowadays for a personal loan, many organisation also has a policy of giving loans to their employees if they are working with this organisation for a very long time. Additionally, a raise in the income, for instance, a salary increase or the existence of additional sources of income should be communicated to the lender with substantial proof you are applying for. In such a case, a lender may rethink and grant a loan despite a low credit score.

Lastly, it is always better to find ways one can improve credit score with the help of a financial advisor or consultant that can help prepare a good financial planning base.