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Is it good to apply for a personal loan if we have a low credit score?

Are you contemplating taking an instant personal loan to fund a large payment? A personal
loan can definitely help you to make payments for your various credit needs, such as planning a
family vacation, a wedding, and renovating your house. It might seem to you that it is very easy
to get a personal loan from various banks and non-banking financial institutions in India.
However, getting a personal loan from banks and non-banking financial institutions will definitely
not be a cakewalk because it is an unsecured form of loan and the credit eligibility is very high.
For secured loans like home loans or gold loans, the credit eligibility is always low because the
borrower pledges collateral or security with the financial institution in order to reduce the risk.
Since in a personal loan, there will not be any security attached, the loan providers will make
sure that the individual meets all the prerequisites and criteria that are important and prove the
creditworthiness and credit background of the individual. Therefore, without a good credit score,
it will be difficult and very expensive for an individual to get a personal loan. It is not good to
apply for a personal loan with a low credit score. You will get high charges on everything when
you calculate it with a personal loan calculator. Find out the consequences of applying for a
personal loan with a low credit score and how you can improve your credit score.

The ramifications of applying for a personal loan with a low credit score

● If you apply for a personal loan with a low credit score, there are high chances that your
loan application will be rejected straight away by the bank or non-banking financial
institutions. Loan providers are very careful when it comes to personal loan applications
because they are an unsecured form of loan and involve no security. Therefore, when an
individual does not have a good credit score, it is a sign that they have not handled their
financial activities in a responsible manner in the past. This opens up enough scope for
a default in the future. Therefore, with a low credit score, a personal loan application
gets rejected or denied. Since there is no demand for any security, banks and non-
banking financial institutions put credit scores as the most important credit eligibility
criteria that every individual needs to meet. If you are not able to meet the credit score
requirement, you will end up getting a rejection from the loan provider.

● When you apply for an instant loan in Mumbai with a low credit score, you may get one
after a lot of research work has been done, but it will be an expensive one. The rate of
approval on personal loans has increased since the advent of various non-banking
financial institutions and fintech organizations online. These digital platforms are setting
low eligibility criteria standards and offering personal loans even when an individual has
a low credit score. Therefore, if you get a personal loan even with a low credit score,
your rate of interest and other charges will be very high. This is how the loan providers
will try to recover the maximum amount of the loan within a short span of time in order to
avoid high risk. Therefore, the loan providers will always charge a high rate of interest,
and the total cost of the loan will be high for individuals with low credit scores. If you
want an affordable personal loan, you need to have a good credit score.

How to improve your credit score?

● Pay your bills on time. Payments constitute 25% of the entire credit score, and even a
single missed payment can drop 50 points from your credit score straight away. If you
are trying to improve your credit score, you need to start by making timely payments
without any delay.

● Pay all of your bills in full, leaving no overdue or outstanding balances. When you pay
your credit cards, you will always find two options: the minimum amount and the full bill
amount. If you pay the minimum bill amount, you damage your credit score and also
make your credit card loan more expensive by adding additional late charges.

● Even if you don't use your credit cards, keep them open. Credit accounts, like credit
cards, need to be opened even when you do not use them. If you have a credit card with
a long credit history that has timely transactions and payments, this will be beneficial for
you to improve your credit scores. The longer your credit history, the better it becomes
for you to get a high credit score. New credit accounts do not contribute positively to
your credit score.

● Stop yourself from applying for multiple personal loan applications with various loan
providers. Every time you apply for a personal loan, the hard inquiry made on your credit
profile will damage your credit score. Therefore, if you want to improve your credit score,
you need to stop applying for multiple loans within a short span of time.

Wrapping up

An instant personal loan is one of the best ways to meet a diverse range of needs and
expenses. Borrow from a non-banking financial institution if you need a hassle-free and digital
instant personal loan in Mumbai or in any other city.

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