How to Get a School Loan With a Low CIBIL Score: Everything You Need to Know

How to Get a School Loan With a Low CIBIL Score: Everything You Need to Know

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Loan for low CIBIL score​

Introduction

Your CIBIL score reflects your financial decision-making. The score shows you how well you have managed the credit, the loans, and the repayments. Lenders use this score to evaluate those applying for a school loan on the basis of repayment potential. A higher score usually makes loans with better deals easier to access, while lower scores may create a risk environment for lenders to be cautious in lending.

Poor scores may complicate the loan application process and lead to rejection or higher interest charges. In this blog, we will discuss how to borrow low credit score loans, and certain tips to improve your CIBIL score for future borrowing.

Role of CIBIL Scores in School Loan Eligibility

CIBIL scores in India range from 300 to 900 and give lenders important information about the financial behavior of a borrower. Here’s how they influence eligibility for educational loans:

  • Loan Approval: Lenders generally prefer a credit score of more than 750. A lower score shows higher risks, and thus the chances of approval are less likely. Utilizing tools like a loan eligibility checker can help you understand your chances of approval and explore suitable financial options, even with a lower credit score.
  • Interest Rates: Poorer CIBIL scores carry higher interest rates as a cost of perceived risks. For example, a borrower with a score of 650 could be charged a rate that’s 2-3% over a borrower with a score above 750.
  • Loan Amount: An excellent CIBIL score increases the opportunity to get the full loan amount applied for. On the contrary, with a low score, a lender may even approve a reduced amount, possibly not enough to cover your tuition fees.

How to Get a Loan with a Low Credit Score?

Even if the CIBIL score is low, many avenues are available to obtain education funds.

By exploring alternative options and presenting a strong case to lenders, you can achieve your financial goals. Here are practical steps to follow to get low credit score loans:

1. Approach NBFCs or Alternative Lenders

According to a recent study, NBFCs account for nearly 60% of education-related loans disbursed in India. Unlike traditional banks, NBFCs and other alternate lenders have more lenient eligibility criteria. They rely less on your CIBIL score and weigh more on the overall financial profile; that is to say, the income, asset, and repayability of your profile. Most NBFCs offer customized school loan products targeted at specific needs, such as infrastructure upgradation or operational costs.

2. Opt for Collateral Loans

Presenting collateral, like real estate or fixed assets, can enhance your loan application. This is because it gives lenders the confidence that they have a safety net even in case of non-repayment, making them more inclined to approve your loan, even with a lower credit score. Confirm that the value of the collateral corresponds to the loan amount to ensure a more seamless process for low credit score loans.

3. Co-applicant Help

Having a co-applicant with an excellent credit record is often a great way to ensure approval in the loaning process, especially for low credit score loans. In India, over 75% of personal loans with co-applicants have higher approval rates compared to individual applications. A co-applicant, whether a relative or business partner, assures the lender of lower risk. This approach not only increases trust but can also lead to easier borrowing conditions, like reduced interest rates, benefiting borrowers significantly.

By taking these steps, you can navigate the challenges of a low CIBIL score and secure the funds needed to grow and improve your school.

Tips to Improve Credit Scores for Future Borrowing

If you are seeking low credit score loans, then you might face certain difficulties because lenders can impose stricter conditions or higher interest rates for your loans. Hence, opting for a co-applicant or exploring options like NBFCs can help borrowers with low credit scores secure loans more easily while improving their financial opportunities.

Here are some recommendations:

1. On-Time Repayment

Timely repayment shows responsible financial behavior that increases lender trust. A study revealed that 35% of individuals with delayed payments experienced a drop of over 50 points in their credit score. Even a single missed payment can significantly reduce your CIBIL score. For borrowers seeking low credit score loans, timely repayment is crucial, as it can gradually rebuild their creditworthiness and provide better borrowing options in the future.

2. Utilize Low Credit

Credit usage is an important part of your CIBIL score, as you are using less than 30% of your available credit limit. For example, if your credit card limit is ₹1,00,000, try to keep your spending below ₹30,000. High credit utilization signals financial strain, which can negatively affect your score. Maintaining low utilization indicates you are not overly dependent on credit.

3. Monitor Your Credit Report

Monitor your credit report regularly and check for mistakes or inaccuracies that could lower your credit score. In India, credit reports can be found through agencies like CIBIL Additionally, using a loan eligibility checker can help you assess your financial standing and identify the best loan options based on your current credit profile.

4. Avoid Multiple Loan Applications

Every time a loan is asked for, inquiries are made regarding your credit profile. This temporarily lowers your score; multiple loan applications within a close period can drag down your overall creditworthiness significantly.

5. Start Early

If you may want to borrow some money sometime in the future, begin to develop a good credit history today. You can apply for a credit card or even get a small personal loan and responsibly service it. To help you track your progress, consider using a loan eligibility checker to assess your eligibility for future loans and make informed decisions about your financial journey.

Conclusion

A low CIBIL score can make securing a school loan challenging but not impossible. Understanding how credit scores impact loan approval is essential. Additionally, improving your credit score can lead to more favorable loan terms, setting a strong foundation for long-term financial well-being. By exploring options like government schemes, applying with a co-applicant, or turning to NBFCs like Varthana who look at other markers beyond just the CIBIL score, you can secure a school loan even with a lower CIBIL score.

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