Loan Approval With Low CIBIL Score:
Understanding Credit Scores and Loans
In today’s world, loans have become an essential tool for managing rising expenses and fulfilling various financial needs. However, most banks and financial institutions rely heavily on an applicant’s credit score to decide whether to approve a loan. A good credit score is essential for securing loans, credit cards, and other financial products.
A credit score is a numerical representation of an individual’s credit history, indicating their ability to repay loans. The most commonly used credit score is the CIBIL (Credit Information Bureau (India) Limited) score. A score above 750 is generally considered good, meaning the applicant is likely to repay their debts on time. But even with a good credit score, there may be situations where loan applications are denied.
The primary factor for loan approval is the CIBIL score. If the score is low, banks may reject your application. A higher score reflects better financial health and increases the chances of loan approval.
Banks and NBFCs (Non-Banking Financial Companies) have specific income criteria for approving loans. For example, HDFC’s Freedom Credit Card requires an individual to have a monthly income of at least ₹12,000. Similarly, self-employed individuals must show an annual Income Tax Return (ITR) of over ₹6 lakhs.
Certain banks and institutions only approve loans for individuals living in specific cities. For example, HSBC only approves applications for its Live Plus Credit Card from residents of cities like Delhi, Mumbai, Bengaluru, Pune, etc.
Job stability is another crucial factor. Frequently changing jobs may indicate instability, making banks hesitant to approve loans. Banks prefer applicants with a consistent career history, as it ensures a steady income to repay loan EMIs.
The DTI ratio is the proportion of income used to pay off existing debts. A high DTI ratio can indicate financial stress, making it less likely for a loan to be approved. Typically, banks prefer a DTI ratio of 35% or lower. A higher ratio could lead to rejection.
Every loan application requires KYC documents, including proof of identity, address, and a photograph. If there are discrepancies or missing documents, the loan application may be rejected.
To improve your chances of loan approval, ensure your credit score remains above 750. Regularly check your credit report for any errors and correct them immediately.
If possible, increase your monthly income or work towards a steady source of income. This will help meet the income eligibility criteria for various loans.
Pay off existing debts to reduce your DTI ratio. This will make you more eligible for new loans.
Make sure your KYC documents are in order to avoid unnecessary delays in the approval process.
While a good credit score is crucial for loan approval, several other factors come into play. By understanding the requirements and improving your financial health, you can increase your chances of securing a loan, even if your credit score is not ideal. Always remember, planning ahead and being proactive in managing your finances will go a long way in achieving your financial goals.
Also Read: Want Rs 36 Lakh in 5 Years? Here’s Everything About NSC
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