When you want a loan from a bank or financial institution, your credibility as a borrower is assessed in terms of your credit history and repayment patterns. Your credit score is what the lender refers to in order to get an understanding of your repayment potential. The score lies between 300 and 900. A score of 750 is considered ideal.
Loan applications often get rejected by banks and financial institutions due to low credit scores or adverse credit histories. Bad scores could be due to a plethora of reasons such as default on repayments, delay in repayment, incorrect information received by the bank, or even repeated applications for loan. The score can be improved, but this takes time. So, if you are in urgent need of a loan and you don’t have an impressive credit score, here are a few options you can explore.
Rely on spouse’s score
If your spouse has a better credit score than you do, ask your spouse to be a joint loan applicant. You stand a better chance of approval as your spouse’s score would raise the lending and repayment confidence of the bank. You can co-borrow with other direct relatives, subject to terms and conditions of the lender.
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Peer-to-peer lending is gaining popularity in India. The screening criterion is less stringent than that of mainstream banks. Factors such as financial behaviour, education, future fiscal prospects, socio-economic conditions, etc., are considered to determine the borrowing eligibility of an individual. If you have a holistically good financial profile, your loan application may be approved. However, interest rates tend to be higher than what is offered by banks. The size of the loan you can avail is smaller and the tenure is shorter than that of a conventional bank.
Collateral loans and rates
Collateral loans are taken against assets such as shares, movable and immovable property, fixed deposits, gold, PPF, etc. However, the interest rate could vary based on the type of financial product you pledge. Your credit score often ends up determining the rate of interest of your loan. If you have a low score, lending institutions may give you a loan at a higher interest rate. NBFCs are typically more flexible about credit scores than banks. You may have to settle for that because you won’t be in a position to bargain for a favourable rate.
The writer is CEO, BankBazaar.com