Getting personal loan sanctioned can be a daunting task amid Covid 19
Premium- Most lenders have raised their eligibility criterion during the pandemic. So, those who do not have an excellent credit score may find it difficult to get a loan
I need a personal loan but I want to take a loan from the bank as they provide loan at minimal rates. However, banks are denying granting me a loan as currently, my credit score is low but it will improve once I repay my EMIs by September. Should I wait or take it from NBFCs?
-Name withheld as requested
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It is, of course, nearly not as bad as last year, where most borrowers struggled to get a loan for several months. Widespread economic disruptions and a far more uncertain environment meant all lenders were extremely cautious in giving out any loan to borrowers a year ago.
Currently, only certain segments like self-employed or those employed in severely affected industries like tourism, hospitality etc., may find it challenging to get a loan. Also, the impact this time appears to be more short-term and we can expect a more conducive environment to borrow soon. Banks and other lenders also seem much more positive and confident.
However, since the pandemic, most lenders have raised their eligibility criterion. So, those who do not have an excellent credit score may find it difficult to get a loan, at least from large banks. Certain NBFCs and fintech may provide them with a loan, albeit at a higher interest rate. Also, the loan amount eligibility for most customer segments would be impacted, which means they would be able to borrow lesser amounts, than what they would have been able to pre-covid.
However, with the intensity of the second wave easing in many parts of the country, and with vaccination drives gaining momentum, I expect the situation to get better and the lending environment to also steadily returning to normalcy.
I am a salaried individual and my credit score is 500. Can I get a personal loan?
-Name withheld as requested
We have seen a large portion of personal loans rejected because of credit score. Without a strong credit score of around 750 or above, getting a personal loan may be difficult for most borrowers. Traditional lenders, like large banks, are typically more conservative and cater only to low-risk borrowers with strong credit history.
A damaged or low credit score- which means borrowers have not behaved responsibly with credit in the past - can be a big deterrent for lenders. Many loan applications are also rejected due to the lack of credit history. Since these applicants have never taken any formal credit in the past, lenders do not know their creditworthiness and cannot predict if they would be reliable borrowers and would repay the loan responsibly.
Apart from this, many borrowers may be ineligible for personal loans because of low or unstable income or their job profile, which lenders feel may impact their repayment capacity.
Naveen Kukreja is CEO and Co-founder of Paisabazaar.com. Queries and views at mintmoney@livemint.com
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