A personal loan’s rate of interest and an individual’s credit score might seem like two unrelated entities at first. However, customers who have a higher credit score can indeed benefit from lower personal loan interest rates. Let us know about credit scores, their relationship with interest rates, and ways to improve your credit score in this article.
What is a good credit score, and what is its importance?
Your credit score is a measure of your creditworthiness as a customer. In other words, your credit score reflects your capability to assume debt. This score falls within the range of 300 and 900. Lenders generally consider a credit score between 750 and 900 is ideal -and are most likely to approve the loan application of applicants without any hassle or delay. In addition to this benefit, a good credit score helps you negotiate with the lender while availing a personal loan. IDFC FIRST Bank, for example, offers an online personal loan worth ₹1 crore to lenders at a comprehensive interest rate. If you have a high credit score, you can negotiate the interest rate of your loan with the lender.
What to do if one has a low credit score?
If you wish to opt for an instant loan and have a low credit score, you can follow specific steps to improve your situation. Here are the steps that you must take to apply for an instant personal loan if you have a low credit score:
- Provide evidence of a stable income: Banks require assurance from the borrower about their capability of repaying a personal loan. Applicants can provide evidence of a stable income to indicate their capability of repaying the loan.
- Apply with a co-applicant: If you have a low credit score, you can apply for an instant loan with a co-applicant who has a high credit score. While both of you will be equally responsible for repaying the loan, you can apply for the loan even if you do not have a high credit score.
- Check your credit score again: Often, if your latest details are not updated correctly, your credit score is reflected at a lower number. You must keep checking your credit score at regular intervals to know your latest score while applying for a personal loan.
- Request the lender to consider you with an ‘NA’ in your credit report: Another option is for you to request the lender to mention ‘NA’ or ‘NH’ in your credit report. Doing so indicates that the borrower in question does not have any credit history in the past 36 months. The lender, in such a case, might grant you a personal loan at a slightly higher interest rate. Do note that this would affect your personal loan EMI
- Lower the loan amount: Finally, if you already have a lot of debt, you can request the bank to lower the loan amount. Customers who have a low credit score can avail personal loans this way.
If you have a high credit score, be sure to negotiate the interest rate offered by the bank and try to lower it, if possible.