Credit score

How to get an urgent loan despite a low credit score – Forbes Advisor INDIA

Getting a loan is not the easiest thing. But getting an urgent loan despite a low credit score can be doubly difficult. Nevertheless, loans can be secured even in such circumstances in various ways.

Understanding the Meaning and Implications of Credit Rating

First, let’s understand the term “credit score”. A three-digit number between 300 and 900, it helps lenders assess your creditworthiness as a borrower. Various things determine your credit score, including credit and repayment history, credit card usage, and more.

In general, a score of 750 and above is considered good while between 550 and 750 is considered average. A score lower than 550 is called bad or bad score. Depending on your credit score, getting a loan can be easy or difficult. Price, duration and terms and conditions may also vary.

Generally, it is advisable to develop good financial habits to build a good credit rating. But in an emergency or emergency, you may need to borrow, regardless of your credit rating. Here are several ways to obtain a loan in such circumstances.

Provide proof of EMI refund capability

It’s possible that you don’t have a proper credit history, but you can still easily repay the monthly equivalent payments (EMI). Your income is the most important factor that determines creditworthiness after credit score. If you provide your payslip or other valid proof of monthly income to lenders, the loan is more likely to be approved.

Opt for a solidarity loan or add a guarantor

Personal loans can be sanctioned if you opt for a solidarity loan or provide a guarantor. The joint loan can be used through your spouse or another family member who has a good credit rating. Since this person is the co-applicant or guarantor, it boosts the chances of getting a loan even with a low score.

Note, however, that the co-applicant or guarantor is liable to repay the loan in the event of default on your part.

Pledge guarantee

Lenders are keen to offer a secured loan if collateral is pledged. Collateral is an asset pledged in exchange for the loan. If a borrower fails to repay, lenders reserve the right to sell the collateral to recover the outstanding amount.

If lenders are reluctant to give you an unsecured personal loan, a secured loan is the best solution. Moreover, it is preferable to credit card borrowing or an unsecured loan which attracts extremely high interest rates due to your low credit score.

Also for lenders, a collateral or guaranteed loan is preferable since it limits their credit risk by offering a guarantee in case of non-payment.

Warning about collateral

Mortgage-backed loans fall into this category and include loans against property, loans against titles, or gold loans. You should only opt for such loans if you are in urgent need of funds because if you cannot repay, the collateral could be confiscated.

Request a lower loan amount

Since lenders may be hesitant to lend you money due to bad credit, the chances of approval can be improved by asking for a lower loan amount. Since the risk of default is less with a lower amount, lenders will be more willing to approve your loan application.

Repaying the above loan on time will then be helpful in building up a good credit history. Once this loan is paid off, if you need another loan for a larger amount in the future, the bankers would be ready to lend thanks to your better creditworthiness.

Checking your credit report for discrepancies

Sometimes mistakes can inadvertently creep into your credit report, impacting your chances of getting a loan. Therefore, you should check your free credit report online at least once a year to determine if there are any errors and correct them if there are.

How a diligent borrower should deal with bad credit

Take the case of a diligent borrower who had taken out a home loan from a leading private bank. The gentleman prepaid his loan a few years before his 15-year term. Given his excellent balance sheet, the bank voluntarily granted him a waiver on the last EMI.

A few years later, he approached another private bank for a personal loan. Later, his request was denied without giving a reason. The man then approached the largest public sector bank (PSU). Now he has been told that his loan approval has been tentatively withheld.

Upon inquiring, he was informed that an EMI from his previous home loan was outstanding. Shocked, the man insisted he had repaid the loan in full and there was nothing outstanding. When he probed further to find out the specific amount pending, the bank found it to be zero.

The gentlemen then realized that the EMI waiver had not been properly reported by his previous bank and the system marked him as defaulter as a month’s payment was overdue. The PSU bank manager expressed his inability to help and said it was best that he contact the relevant credit bureau to rectify the discrepancy.

Unfortunately, the credit bureau was only willing to update his file if he paid the fee for his report. Angered, the man refused to pay to update an erroneous record, which was not his fault. Fortunately, the problem was resolved when the PSU bank authorized his loan after providing the NOC from the private real estate lender, indicating that his dues had been fully paid.

This example is intended to indicate that periodic checks of your credit file could correct discrepancies, if they occur. If you fail to correct the discrepancies and update your credit report in time, it could be troublesome when an urgent loan is required.

Request the No History (NH) or History Not Available (NA) status of your credit report

You can also ask the lender for the NH or NA on your credit report. This is generated if there has been no previous credit activity or if no credit has been used in the last three years.

Subsequently, the reasons for your inactivity can be explained to the lender. Loan approval is then possible although the interest rate may be slightly higher.

If traditional avenues fail, approach other lenders

If you’ve approached traditional lenders for a loan and they’ve turned down your request, it’s best to approach those who are willing to lend to people with low credit scores. Note that these loans will only be granted at higher interest rates to compensate for the higher credit risk.

Fintech and NBFC companies

You can search online for lenders offering loans. Financial portals or peer-to-peer lending platforms that facilitate loans from various lenders to those with low credit ratings can also be helpful.

Fintech lenders, in particular, will likely have options even for low-scoring borrowers. Plus, their paperless disbursement process is much faster than traditional lenders.

Contact your employer’s bank

If your company has salary accounts with a specific bank, you can approach this entity as they will offer special offers for employees. The chances of a loan being approved by such a bank are much higher because they have more assurance of being repaid through an ongoing relationship with your business.

Things to avoid when looking for an urgent loan

Research well and avoid approaching several lenders simultaneously

Before approaching a lender for a loan, educate yourself discreetly online about interest rates, eligibility standards, and other policies. If you approach several lenders directly with a loan request, it can trigger difficult inquiries with the credit bureaus.

Beware of difficult requests

“Serious investigation” refers to a request that lenders submit to the credit bureaus to obtain a potential borrower’s credit report whenever an individual applies for a credit card or loan. Multiple difficult inquiries in a short period of time makes lenders feel like you are credit hungry, reducing your chances of approval.

Worse, serious inquiries lower your credit score, making it harder to get a loan.

For applicants who have a long-standing relationship with a particular bank or lender, it makes sense to discuss your loan situation and needs honestly. Notwithstanding your poor credit rating, the lender can advise you on the best way to advance a loan on relatively better terms.

Beware of scammers

In the meantime, stay away from scammers, especially when they are in dire need of funds. Look carefully at the lender’s credentials and never call numbers found online directly, as they could be those of scammers. Always check these numbers with other sources to verify their authenticity.

Remember that scammers will offer great terms and conditions. Later they will ask for upfront fees such as processing fees etc. Always avoid these offers, no matter how tempting, because they are fake. If you pay money, rest assured that this amount will be lost and the promised loan will not materialize.

If these guidelines are followed carefully, you can qualify for urgent loans even with low credit scores and on more favorable terms.