27-Feb-2019 written by : FSI-Team
It might surprise you, but according to CIBIL records, 80% of the loans that are approved are for those who have a cibil score of 750 or above. So, if your score is lower, then this fact could be disheartening to you. However, does it mean that you can’t get a loan at all if you don’t have a score above 750? What if your score ranges between 500 to 550? Can you get a loan with this score? Let’s find out.
It’s true that cibil score is one of the most important factors that the banks consider when they approve loans. However, there are some other factors too that play a role in that. For instance, if you are able to prove that you have a source of high income, then you can get a bank to approve a loan for you even if you don’t have a high score. Similarly, if you can offer collateral then also you can get a loan for low cibil score.
The following are some of the most common situations in which you can get a personal loan or home loan even when you don’t have a good credit score:
An easy way to get a loan when you aren’t confident enough about your credit report is to get a secured loan. In this, you can offer collateral such as real estate, gold, bonds, etc. The idea is to secure the loan against something tangible. So, in case things go south and you can’t repay the loan, the bank has the option to seize the collateral to recover the loan amount. This kind of arrangement makes it less risky for them to lend the money to you. However, it also means that you put yourself in a risky position because if you aren’t able to repay the loan for any reason, you may lose the collateral.
A lot of times, when people end up with a poor credit rating, it’s merely because of lack of awareness. So, even if you have a poor score, the bank may overlook that fact if you are otherwise able to show that you are earning a high enough income that can cover the loan EMIs. However, bear in mind that this doesn’t mean you can enjoy the same benefits as those with high ratings do. So, while you may get a loan for low cibil score, you may still need to pay a slightly higher interest rate than standard. If you really want the best rate, then you must work on your credit score first.
If you want a home loan, then you need to know that the bank covers only 70%-90% of the property value, or even lower than that. That’s called the “loan to value” ratio. So, the higher is the LTV ratio, the bigger is the loan you can get. The amount that’s not covered is still to be paid from your own pocket. Again, this is where your credit score plays a big role as customers with high scores are able to get loans with higher LTV ratios. But this works the other way around too. For instance, you can get a loan with a low score that ranges from 500-550 if you are willing to settle for a lower LTV ration i.e. paying a sizeable portion of the property amount on your own. This may put a large financial burden on your shoulders, but it can also be the best option you get.
If you have a below-average cibil score i.e. one that’s around 500, then you should expect to struggle to some extent when you need a loan. However, by taking steps towards making an improvement while trying the techniques given above at the same time, you can make the job a lot easier. So, take good care your credit rating and try to develop good credit habits so that when you ever need a loan, you can get it without a problem.