05 JANUARY, 2023

Checking your credit score periodically is one of the best ways to build a good credit profile. Your credit score is an important parameter that impacts your credit eligibility including your personal loan eligibility. Holding an excellent score of 750 and above may qualify you as an eligible candidate for an affordable and rewarding credit deal. In contrast, a low score might make it very difficult for you to avail a personal loan approval at suitable terms and conditions. However, availing an approval with a low credit score for a personal loan is not difficult if you follow certain tips. Discussed here are some smart tips you must abide by before you apply for a personal loan if you have a low credit score –

  • Go for a low loan value

Many lenders may hesitate to lend you a personal loan if your score is below 750, as this shows that you may have a poor previous credit history, which may make the lender think you are incompetent to repay your loan EMI by the due date. This is why you must apply for a small loan amount, as doing so lowers the lender’s credit risk, which enhances your chances of availing personal loan approval. To compute your loan value according to your repayment potential and personal loan eligibility criteria, you can use an online EMI calculator. By applying for a lower loan amount and making timely EMI payments, not only are your immediate financial needs met but you also get to improve your credit score over time. This will help you in the future when you need to apply for other loans.

  • Apply for a personal loan with a co-applicant or guarantor

As low credit scores indicate high chances of default, applying for a personal loan with a joint applicant may help. Doing so shifts your loan repayment liability to the co-applicant or guarantor if you miss out on making the personal loan repayment. Due to this, the credit risk of lenders also falls, which makes them less hesitant to accept your loan application even if you have a low credit score. Additionally, if your co-applicant's or guarantor’s credit score and income are on the higher end, then you may get loan approval at a lower personal loan interest rate. In a few cases, adding a co-applicant or guarantor also may make you eligible to avail an instant personal loan, i.e., a loan approved on the same day of placing the application.  

Bottom line

Now that you know the important tips linked with personal loan approval, make sure to be conscious about healthy credit habits. Ensure to check your credit score periodically to take immediate action in the case of any error, mistake, or discrepancy to maintain an excellent credit score of 750 and above. In case, your score is below 750 and you witness an immediate need for funds, you can still avail a personal loan by adding a guarantor/co-applicant with a good score and income or by opting for a low-value loan.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.