Credit score, though it has been around for a while, has become popular quite recently. Yet, a large chunk of the population does not know about credit scores or the fact that they have one.
Suddenly, one day, when applying for a loan, the bank tells them their credit score is low and that their loan application has been rejected due to that.
When you have a low score, it means that you are a risky customer and banks are usually not willing to give you a loan. A credit score is primarily based on how well you have repaid your previous loans, whether you have defaulted or pre-closed any loan, what types of loans you have taken and how much of your income goes in repaying loans.
So, now if you have a low score and still need a personal loan, you can find some lenders who will be willing to give you the money, but they usually charge a high rate of interest. Some lenders even charge up to 30-40% p.a., which is very high.
Though it may be a challenge, with a low CIBIL score, you can get a personal loan. There are many new emerging fintech platforms and NBFCs that will offer you a loan but might charge a higher interest rate.
Always research the lender and see if they are credible. Don’t fall prey to scammers who steal your data and never disburse your loan. Some scammers may even offer you great terms and conditions, but they will make you pay some fees up front. You will never see them or your money again.
Ensure you know the correct interest rate that you are getting. Some lenders may give a wrong picture by showing their interest rates in terms of months and not years. So, 30% per annum is shown only at 2.5% per month. Whereas a regular bank will charge you only around 14% p.a. which is only 1.66% per month. When you calculate interest over a long period of time, it amounts to a significant difference.
If you are not in a hurry to take a loan, you can work on improving your credit score immediately. This will ensure that you do not get rejected for another loan application ever. Here are some tips that can help you improve your credit score.
Even if you have a low credit score now, don’t worry. You can always pull it back up. Keep your score above 700 to ensure you always get your loan application approved!