Personal loans are a financially convenient option for borrowers who need additional funds to meet their personal expenses. Since personal loans come with no end-use restrictions, it can be used for many purposes such as holidays, medical expenses, higher education funding, wedding expenses etc.
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When it comes to getting a personal loan approval, your credit score plays a major role. A credit score is a three-digit number that summarizes your credit history and helps lenders assess your creditworthiness and how likely you are to repay the money you borrow. If you have a low credit score, it can be tougher to get a loan. However, there are ways you can improve your chances of getting a personal loan approval.
Good vs bad credit score range
| Credit score | Is it good or bad? | Chances of approval |
| Less than 600 | Very bad | Extremely low |
| 600-649 | Bad | Low |
| 650-699 | Satisfactory | Possible |
| 700-749 | Good | High |
| Over 750 | Very good | Extremely high |
Tips to get a personal loan with low credit score
Stable Income: Lenders often prioritize borrowers with a stable and consistent source of income. This assures them that you have the means to repay the loan. You can provide proof of employment, such as salary slips, employment letters, or ITR documents. The longer you’ve been with the same employer, the better it reflects on your stability.
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Low debt-to-income ratio: The debt-to-income ratio is a measure of your monthly debt payments relative to your income. Lenders prefer borrowers with a lower ratio, as it indicates that you have more disposable income to handle additional debt. To improve this ratio, consider paying down existing debts before applying for a new loan. This can include credit card dues, car loans, or any other outstanding debts.
Co-applicant: Applying for a loan with a co-applicant, such as a family member or a spouse, can increase your chances of approval. The co-applicant’s credit score and income may offset your own shortcomings. Keep in mind that both you and the co-applicant are equally responsible for repaying the loan. Make sure the co-applicant is aware of the responsibilities and risks involved.
Additional documentation: Providing extra documentation beyond the standard requirements can strengthen your loan application. This may include bank statements, letters of recommendation, or proof of assets. The goal is to present a comprehensive and transparent financial picture to the lender. This can help address any concerns they might have about your creditworthiness.
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Conclusion
Getting a personal loan with a low credit score can and will come with a series of obstacles, but it is not impossible. Following the above tips, you can improve your credit score. You should try and improve your credit score, not just for loans, but for any credit-related transactions in general. Improving your credit score takes time, but it’s worth it in the long run.
