Is Your Credit Score Important to Borrow a Personal Loan?
May 28, 2022 16:41
A personal loan is a short-term credit where no collateral is required. It is a multi-purpose loan, and the proceeds can be used as per your preference. Unsecured personal loans have evolved as a popular option for consumers due to attractive borrowing terms. However, not all applicants are successful. Lenders check various parameters before extending funds.
One essential factor in determining your personal loan for marriage is your credit score. Please continue reading to learn more about the significance of credit scores and how they affect your loan eligibility.
How Important Is a Credit Score for a Personal Loan?
Credit scores reflect an applicants credit history as indicated in the credit reports. These scores give lenders an idea of how responsible and creditworthy they are with repaying debt.
A good credit score indicates a lower chance of loan default, giving lenders confidence to lend to such applicants. Applicants with poor credit scores, on the other hand, signify a lack of financial discipline and a higher likelihood of repayment failure.
Lenders often provide their best loan options to applicants with good credit scores, such as reduced interest rates and significant loan amounts. At the same time, interest rates for customers with lower credit scores are high. This is to compensate for their increased risk of loan default. Applicants with very low credit scores may have their applications denied.
Credit ratings vary from 300 to 900. An applicant for a personal loan with a credit score above 750 is more likely to have his loan application accepted.
What Factors Influence Your Credit Score?
Some of the factors that impact an applicant’s credit score are listed below.
Clearing all credit card dues on time without fail
A stable job with a regular income
Paying all EMIs on time with no late fees or default
Frequent maxing out of credit card or constantly exceeding 75 per cent of the credit limit.
Only pay the minimum amount due on credit cards
Obtaining an excess number of credit lines, particularly unsecured ones.
Benefits of Good Credit Score for a Personal Loan
Some of the benefits of maintaining a good credit score for securing unsecured personal loans are:
Quick Loan Approval
One significant benefit of having a high score is the swift loan processing and disbursement of funds to qualified individuals. Banks evaluate an applicant's credit score as an indicator of their financial discipline.
Negotiate a Better Deal
A high score enables an applicant to strike a better deal. For example, banks may lower interest rates while enhancing loan amounts for personal loans for marriage or other purposes. In addition, some lenders may also reduce or waive loan processing fees, which will help reduce the overall debt burden.
With minimum documentation and a flexible lending term, an unsecured personal loan may be a trustworthy companion in times of need. Moreover, some lenders provide instant cash loans on Aadhaar cards, reducing the need for additional documentation. However, before requesting a loan, you should review your credit score since it directly affects the success of your loan application.
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