With a number of lenders proliferating across the country borrowing money is no longer difficult. The number of phone calls we get on a daily basis selling personal loans is an indication of how the lenders are now chasing people to borrow.
However, it may be easy to borrow money as far as you are able to repay it. The moment you start defaulting on the loans, trouble starts. Even a delay in payment would mean trouble for the borrower.
A delay or default in repaying a loan affects what is called a bad credit score measured in India as CIBIL score. This score is very important for a personal loans as compared to any other form of a loan.
A personal loan is an unsecured loan which means the lender is taking a higher risk based on certain financial track record of the borrower.
The CIBIL score measures your credit worth. The range of the score is usually between 300 and 900. The closer the score is to 900 the better it is for the borrower while a score closer to 300 would mean that getting money from the official route will be difficult. Lenders are generally comfortable lending money to people with a CIBIL score of over 725.
Your CIBIL score depends on various factors concerning your borrowing track record. It does not depend on your salary. How you have financially behaved after taking a loan is the main -basis of CIBIL score. Defaults and delay, - can bring your CIBIL score down. More than any other loan CIBIL score is paramount in personal loans.
So does it mean that a person with a low CIBIL score has no option of getting a loan?
This may not always be the case. However, chronic defaulters would have trouble raising money from the official channel. But occasional delays or defaults can be managed.
Here are some of the ways in which one can raise money through personal loans despite a low CIBIL score.
Improve your income stream
In order to get incremental personal loans, the lender has to be satisfied that you have the ability to repay the loan. A new source of funds or a salary increment will go a long way in convincing the lender that there is enough cash flow to support a new loan repayment. One will have to convince the lender that the new income stream is a regular one and not a one-time income. Any documentary proof like a contract with the vendor from where the borrower is getting money will help in building up the case.
Even if the lender may see merit in the story they may agree to lend on a higher interest rate than the market rate along with some additional charges.
Go in for a smaller loan
Asking for a bigger loan after having a low CIBIL score will scare away any lender. A smaller loan with an adequate income stream may convince him to risk a small amount. Taking a small loan and repaying it regularly will not only convince the lender but also help improve your CIBIL score.
While personal loans may be difficult, but not impossible despite a low CIBIL score, one can go in for a Collateral loan.
Loan against shares, gold loans, - Term deposits is easier to get despite a lower CIBIL score. The lender is comfortable that they have collateral as a guarantee against any defaults. In such cases, the CIBIL score does not matter. On the other hand, a regular payment on these loans can help in improving your CIBIL score.