Most of us are aware that a near perfect credit score and a steady income are a must to qualify for a personal loan, especially from reputed banks and lenders. Bad credit can turn the odds against applicants even if they could afford the loan. This situation can be remedied by following a few tried and tested approaches.
Here are 5 tips for those with bad credit to get a personal loan.
- Approach the right lender
Non-banking Financial Companies (NBFC) and Peer-to-Peer (P2P) lending websites tend to be more flexible with eligibility criteria for personal and other loans when compared to banks. There’s no escape from strict scrutiny, but it is possible to get small loans of upto 5 lakhs that too at affordable interest rates between 12 and 24% for a period of 1 – 3 years.
Those with credit scores less than 750 may do well to directly approach these lenders rather than try for a loan at the banks, as the credit history is bound to get hit each and every time a loan gets rejected, or if even credit reports are accessed for verification.
Some lenders, typically NBFCs do not strictly go by just the credit scores, especially when the applicant has a steady source of income, tax records, and has been a residing in the same place for at least a couple of years. NBFCs ideally target business opportunities turned down by banks, and will be willing to offer a personal loan once they are clear about the reason for poor or bad credit scores. Explaining the reason behind the bad credit, defaulted payments etc., are bound to work in favour of the applicant.
- Time the Loan application well
As noted earlier it may not be judicious to enquire about a loan or send out loan applications to several lenders at the same time or at short intervals. Gather all essential details from other trusted sources and first check affordability even if the numbers may not be that accurate. Also allow at least a couple of years’ time to pass by before applying for a fresh loan in case there were problems paying up the previous loan.
- Improve credit score
Those who are not immediate need of a personal loan have an option to improve their credit scores before actually applying for a personal loan. Signing up for a credit card, using it and paying up dues regularly is a great way to improve credit ratings. Also settling other bills and loans repayments on schedule, helps boost credit rating over time, increasing prospects for a personal loan.
- Accept unattractive terms
With credit scores of 650 or lower, lenders are most likely to get stingy with the loan amount and also charge higher interest rates are personal loans are unsecured. If in dire need of money, it may become a must to accept such terms, when none of the above alternatives are beyond scope.