Recently lenders have started to base lending rates on the credit score of the applicant. Not just that, it is one of the first factors considered by lenders when analyzing credit applications. Thus it becomes important to understand the need of having a good credit score to improve your financial health. Having a low credit score can either ruin your chances of loan approval, or it can increase the interest rates to a great extent which becomes cumbersome for someone who is looking for a personal loan for self employed. You might have to deal with rejection in most cases if you do not maintain a decent credit score.
However, it is not very difficult to get a personal loan for self Salaried if you follow these basic rules despite having a low or bad credit score:
Be ready for a higher interest rate at first.
A credit score is no longer used as just eligibility criteria for loan approval, but it is also one of the main deciding factors for granting personal loans for self employed people who do not have a consistent source of income. People with a poor credit score will be obliged to pay a higher interest rate on their loans. This is because lenders have begun to link loan rates to a loan applicant’s credit score. As a result, many of us settle down to paying higher interest rates rather than getting our loan applications getting rejected. It is always advisable for you to compare several loan offers based on their credit score requirement, monthly income, and other factors before settling for a high-interest rate loan. Make sure you choose a longer loan term for cheaper EMIs and aim to pay it off early to save money on interest. Additionally, it is also important to maintain a good debt-to-income ratio which should not exceed 60 percent while choosing monthly EMI for a personal loan for Salaried.
Furthermore, after your loan is disbursed, make sure you repay it on time since this will help you enhance your credit score over time. Once you have successfully attained a decent credit score, you can then consider opting for a balance transfer to a lender that offers lesser interest rates. As a result, you will save a lot of unnecessary interest on your remaining money. A balance transfer is considered to be one of the prevalent ways for a swift repayment of personal loans for self employed people. Just be sure the overall savings in interest payout is sufficient and overcomes the related fees such as processing charges.
It is not just sufficient to know the numerous options available to obtain a personal loan for self Salaried despite a low credit score, and you must also take the required steps to improve your credit score since it will help you to better your financial situation.
Take A Smaller Loan Amount
While determining your loan eligibility, lenders consider your previous loan payback commitments. Based on your previous performance, a further process is carried out. Apart from this, credit risk assessment and the loan applicant’s credit profile form two of the major determining factors for the loan amount. People who have a significantly poor credit history are considered less creditworthy as a result of their qualifying. If you are someone looking for a personal loan for self employed and have no or less credit score, you must aim for a smaller loan amount, thus increasing your chances of approval at the same time reducing the lender’s credit risk.
Take Help of a Co-applicant
To increase the odds of loan approval rather than rejecting the application outright, many lenders believe in the necessity of a guarantor or co-applicant. It is always advisable to take the help of a good co-applicant having sufficient income sources and a decent credit score. This will significantly increase your eligibility to obtain a personal loan for self Salaried. Using this, the credit risk of the lender is also not compromised because the co-applicant also functions as a guarantor in case the borrower fails to make the repayment on time.
Timely payments of all your bills
Your credit score suffers due to irregularity or delay in paying your credit card bill or monthly EMIs on loan. This is entirely reflected in your credit report, which is updated regularly. Avoid skipping or delaying your EMIs rather. Always try paying them on time. This will ultimately help you better your credit score and, as a result, increase your chances of qualifying for a personal loan for self employed.
Good Credit Utilization Ratio
It is always advisable for credit users to keep their CUR(Credit Utilization Ratio) under thirty percent. Through this, they can significantly increase or decrease your credit score. Remember, if it exceeds this limit, it becomes a negative indication implying credit hungriness, as said by several credit bureaus. This serves as the credit card limit. However, if you often exceed the limit, you still can ask for a credit card that has even more credit limit. As a result, it will increase the CUR.
What to do if banks turn you down?
Financial organizations such as NBFCs or fintech, in comparison to banks, have less severe evaluation standards for a personal loan for self Salaried. This serves as an alternative in case your application is rejected by the bank. The odds of getting a personal loan from an NBFC are likely to be better than from a bank as they do not give much importance to a high credit score. However, they impose higher interest rates on personal loans, which can become an issue for many.
Alternatively, you can also try loans against stocks, gold loans, or top up your already existing home loans. These are safer options compared to a personal loan or loan against a credit card. Always make sure to make timely payments of all monthly EMIs and safeguard your credit history.