Personal loans are a convenient way to access funds quickly during a financial emergency. Banks and financial institutions offer a range of personal loans tailored to various needs, making it an attractive option for many. However, one key factor that banks consider when approving a personal loan is your CIBIL score. A low CIBIL score can significantly hinder your chances of loan approval. So, what can you do if you have a low CIBIL score but still need a personal loan? Let’s explore some strategies to help you secure a loan despite your low credit score.
Understanding the Personal Loan Process
Personal loans are generally easier to obtain compared to other loan options, but approval is contingent upon meeting certain eligibility criteria. Lenders typically look at factors like your income, credit score, and current expenses. If any of these criteria are not met, your application may be rejected. It is essential to provide accurate information during the application process as it can improve the chances of approval and may even lead to a loan at a lower interest rate.
The Role of a Co-Borrower
One option to consider if you have a low CIBIL score or insufficient income is to apply with a co-borrower. A co-borrower can help improve your loan eligibility, as their credit history and financial situation are also evaluated during the loan process. A co-borrower shares the responsibility of repaying the loan along with the primary borrower. This is especially helpful for individuals who fail to meet the eligibility criteria due to a low credit score.
Who Can Be a Co-Borrower?
Most financial institutions only allow the borrower’s spouse or parents to act as co-borrowers. In some exceptional cases, siblings may also be considered. Including a co-borrower in your loan application can significantly improve your chances of approval and potentially allow you to qualify for a higher loan amount.
Benefits of Adding a Co-Borrower
The presence of a co-borrower can enhance your loan application in several ways:
- Improved Loan Eligibility: Co-borrowers share the responsibility of repaying the loan, which can improve your eligibility, especially if your credit score is low.
- Lower Debt-to-Income Ratio (DTI): Lenders prefer borrowers with a low DTI ratio, meaning they have less debt in relation to their monthly income. A co-borrower can help reduce the overall DTI ratio, thus improving your chances of loan approval.
- Favorable Interest Rates: Co-borrowers can help secure a loan at more favorable interest rates, making it more affordable in the long run.
Risks of Co-Borrowing
While adding a co-borrower can be beneficial, it’s important to note that both the primary borrower and the co-borrower are equally responsible for repaying the loan. If the primary borrower fails to repay the loan on time, it can affect the co-borrower’s credit score as well. Therefore, both parties should ensure that the loan is repaid promptly.
In cases where you already have existing debts, a co-borrower can still be included in the loan application. Financial institutions typically look for borrowers with a low DTI ratio, and adding a co-borrower can help fulfill this requirement, even if you have other outstanding loans.
Conclusion
A low CIBIL score doesn’t mean you can’t qualify for a personal loan. By including a co-borrower with a good credit score and stable financial background, you can improve your chances of loan approval and secure favorable terms. Remember, though, that both you and your co-borrower are jointly responsible for the loan repayment, so it’s important to be diligent about managing your finances.
Leave a comment