Various factors are considered when you apply for a personal loan. Lenders have preset eligibility conditions of closely evaluating the applicant’s profile for crucial aspects such as age, current income, job nature, employment status etc. Additionally, one of the important parameters to understand the applicant’s credibility and repayment capacity is a credit score.
The credit score’s relevance for personal loan applications is thoroughly high. This is because a personal loan is, by nature, an unsecured loan and thus does not have any security or collateral backing. Hence, lenders completely depend upon the credit score for a personal loan to understand an applicant’s credibility and reduce its credit risk.
But what exactly is the minimum credit score for availing an SBI personal loan online or a personal loan through any other lender? Besides checking your SBI mini statement to know your savings account balance, ensure to build your credit score to improve your personal loan eligibility chances. This is because the requirement for a personal loan may hit anytime, and in case of no credit score, you either may not be able to avail of a personal loan or may get personal loan approval at a high-interest rate.
Let us understand the crucial intricacies of credit score to know how much credit score is required for a personal loan:
What is the minimum credit score requirement for a personal loan?
How much credit score is required for a personal loan? Before answering this, let us understand the significance of a credit score and how it is calculated. A credit score in India is an indicator of your credibility. It is computed on a scale of between 300 – 900. Values of the score are interpreted as listed:
∙ A credit score, which ranges anywhere between 800 and 900, is considered excellent.
∙ A credit score, which ranges anywhere between 750 and 800, is considered as good.
∙ A credit score, which ranges anywhere between 635 and 750, is considered as average.
∙ A credit score, which is below 625, is considered as bad.
Thus, the minimum credit score equals 750, which is considered ideal for availing of a personal loan. It allows the borrower to get the loan on favourable terms and conditions. However, it is important to mention here that the applicant who has a credit score below 750 can even apply for a personal loan. However, the lender may charge a higher interest rate on the personal loan to applicants who have an average score.
Important eligibility criteria for taking up a personal loan
|Crucial requirements||Limits and conditions|
|Age||Borrowers must have an age of between 21 – 65 years.
Maximum loan tenure is dependent on the borrower’s age. Years that remain until retirement can act as the maximum loan period for availing of the personal loan.
|Credit score||A recommended credit score is 750
The minimum credit score accepted is 625
|FOIR (fixed obligation to income ratio||Existing FOIR must be below 50 – 60 percent|
|Work profile||∙ Salaried
∙ Self-employed non-professionals
∙ Self-employed professionals
|Work experience||It is mandatory to show your work experience. Your experience must range anywhere between 2 to 5 years with a previous 1-year experience with the existing employer.|
|Income||Self-employed individuals – minimum monthly income of Rs 20,000
Salaried employed individuals – minimum monthly income of Rs 15,000
Why is a credit score crucial to avail personal loan?
Assessing the credit score is an essential part of lending. It is important for the personal loan as such loans get issued without security or collateral. Credit scores are useful for borrowers as well. The reason why a credit score is significant to avail are as follows:
∙ Gauge credibility: Credit score assists lenders to evaluate the credibility and repayment potential of the personal loan applicant. A high credit score is nothing but a reflection of good financial behaviour. It lowers the lender’s credit risk.
∙ Expedited loan application procedure: A high credit score assists in building confidence and wins the massive trust of the lender. Personal loan applications that meet eligibility criteria are quickly processed. Loan approval, as well as disbursal, takes place in a matter of just a few hours.
∙ Competitive interest rate: Lowest interest rate advertised by the financial institution is typically provided to the applicants with a high credit score. With a higher score of 750 and above, applicants stand the chance of availing of a personal loan at favourable conditions.
∙ Enhances loan eligibility: One of the basis of the important aspects which the eligibility for a personal loan is judged is the score. Applicants with a high score are eligible to avail of a higher loan amount in the long term.
How can you avail of personal loans with a low credit score?
Having a high credit score ensures your chances of availing personal loan at best possible deal. On the other hand, a personal loan with a lower score will need substantial research time and effort. However, thankfully, it is not impossible to avail of a personal loan with a lower credit score. Here is instant assistance to allow you to take up a personal loan with a low score:
∙ Review your credit score: Ensure to review your score when you are looking to apply for a personal loan. Avoid applying for a personal loan instantly if you hold a low score. Try and build your score before you apply for it.
∙ Compare your personal loan rate for a lower credit score: In case you need a personal loan instantly, ensure to compare the rates offered by various lenders. Availing of a personal loan with a lower score of below 750 may cost you more in the form of a higher personal loan interest rate. Thus, it is crucial for you to carefully compare and research the important offered benefits along with the conditions applicable. Reviewing the offers of distinct lenders and reading through fine print is crucial.
∙ Know about your repayment capacity: Avail personal loan only if you are sure that you can repay it comfortably. It is crucial because any default in the loan repayment may result in a further drop in your credit score.
∙ Check your eligibility: An eligibility check will assist you to know about the quantum of loan that you are perfectly eligible for based upon your credit score. By doing so, you can save on the hard inquiry, which may result in a drastic drop in your score, and your loan may be rejected.
∙ Add in collateral: A secured loan is approved even if your credit score is low. Contemplate pledging security to avail personal loan with low APR.
∙ Add in co-applicant: By adding a co-applicant with a strong credit score to a personal loan application, your loan eligibility chances will be enhanced.