Personal loans are multipurpose loans that help you meet your personal or business-related financial obligations. You can apply for personal loans online and get the loan sanctioned almost instantly. However, you need to fulfill some personal loan eligibility criteria so that the loan is sanctioned easily. Among others, one criterion is your credit score.
Your credit score is a measure of your credit history. It checks your past credit records and their repayment history. If you have defaulted on any previous loan, the credit score is hampered. Does this mean that you cannot avail of a personal loan if you are a defaulter? Let’s find out.
Personal loan for defaulters
While defaulting on an existing or previous debt impacts your credit score negatively, it does not mean that you become ineligible. Thankfully, you can avail of personal loans even if you are a defaulter. Here’s how –
- Work on your credit score
Even if you have a history of default, you can work towards improving your credit score. Try and maintain a clean repayment history by paying off your debts on time. Limit your credit utilisation and try to build up your credit history. Your credit score is dynamic and changes with your credit behaviour. If you work on improving it, you will be able to avail of personal loans in the future.
- Add a co-applicant or a guarantor
A co-applicant is someone who can apply for the loan jointly with you. The co-applicant should be an income-earning member with a good credit score. The co-applicant’s income and credit score, when added with yours, increases your personal loan eligibility and helps you avail of the loan easily.
Similarly, a guarantor is someone who guarantees the payment of the loan if you fail to do so yourself. They act as a guaranteeing authority for your loan. If you bring the guarantor into the equation, the lender will sanction the loan since the repayment would be guaranteed even if you default.
- Try and boost your income
A personal loan is issued based on your income. If you show an increased income, sufficient to pay the loan EMIs, the lender will sanction the loan. So, look for supplemental sources of income to boost your aggregate income before you apply for the loan.
- Pledge a collateral
Though personal loans are unsecured loans, pledging an asset as collateral can help you get the loan if you have a default history. As the loan would be secured against the asset, the risk of default would reduce and the loan would be issued.
- Choose a suitable lender
Lastly, look for a suitable lender for a personal loan if you are a defaulter. Many lenders allow personal loans at low credit scores or with a default history. So, compare the available lenders to determine which one would sanction your loan despite your history. Also, check the personal loan interest rates to ensure that you can avail of a cost-effective loan.
A defaulting history is bad, but it does not mean that you cannot avail of a loan. Try and avoid defaulting on your debts but, if it does happen, you can use the aforementioned tips to avail of a personal loan. Also, use the personal loan EMI calculator to calculate the prospective EMIs of the loan beforehand. Make sure the EMIs are affordable so that you do not repeat defaulting. A repeat defaulting history might make you ineligible to avail of loans in the future. So, be an informed borrower and get a personal loan to meet your financial needs.