Instant personal loans with a 500 credit score: Are you eligible? Find out now | Mint

Instant personal loans are offered to you by lenders based on your credit score and overall profile. These loans are approved instantly and do not require collateral. Hence, they are offered with comparatively lesser amounts and higher interest rates. The interest rates offered to you majorly depend on your credit score.

What is a credit score?

Credit score is a three-digit number that may vary from 300 to 900 which is issued by credit bureaus in India. It gives lenders information concerning your credit worthiness, your ongoing borrowings, spending habits and your credit repayment history. The higher the credit score, higher are your chances of getting your loan application approved.

Any credit score above 650 means that you are well capable of managing your credit, and reflects that you are a responsible borrower who is capable of repaying the debt on time.

On the other hand, if your score stands below 650 it highlights that it is hard for you to handle your debts and which puts you in a higher risk category. Paying your dues on time and not taking loans recklessly constructs a good credit rating, which can in fact improve your creditworthiness.

Is a credit score of 500 enough for an instant loan?

While your eligibility depends on various factors, a simple answer to this question is that your chances with this credit score are quite bleak. A possible reason for this is the fact that a credit score of 500 portrays a bad credit history and reflects that you have not been regular in your past repayments and have made a lot of defaults. Along with this, it also shows that you might be under financial constraint which as a result, increases the risk for the lender to recover the money on time.

This does not mean that you have no chance of getting an instant personal loan. You may get offers by lenders, however, the interest rates on these will be exorbitantly high and unreasonable. You may even have to provide collateral in some cases. Hence, getting an instant personal loan under your terms with a 500 credit score, is almost impossible.

Siddharth Maurya, Founder & Managing Director,Vibhavangal Anukulakara, gave his valuable opinion on this and said, “A credit score of 500 is considered poor, making instant personal loans difficult. However, it’s not impossible. High-risk lenders may offer loans with high-interest rates and strict terms. Fintech lenders may consider alternative credit scoring methods.”

“To improve chances of approval, ensure a stable income, provide necessary documents, and consider securing the loan with collateral. Be cautious of predatory lenders and hidden fees.

The best strategy is to improve your credit score before applying. Make timely payments, pay off debts, and review your credit report for errors,” he added.

How to improve credit score?

Bill repayment:Make sure that you pay your bills on time. In case you have active credit cards, ensure thatyou pay the bills in full without missing any single due date.

Check credit report: Check your credit report in regular intervals and assure that there are no mistakes. If there is any discrepancy, ensure that you get it rectified as soon as possible.

Do not make hard inquiries regularly:If you are unsure about taking a personal loan, it is better to make a soft inquiry rather than a hard inquiry, as frequent hard inquiries can show you as a desperate borrower and that you might be in need of funds due to financial issues.

Debt ratio:It is important that you do not borrow more than you require as this can lead you to an unwanted burden which you might not be able to repay in time. It is advised that your debt should not cross more than 40% of your total income.

In conclusion, having a poor credit score negatively affects your borrowing capacity as well as makes you ineligible for low interest rates on personal loans. Hence, it is important that you take conscious efforts in improving your credit score. You must also take note that you can notincrease your credit score overnight and only constant efforts and regularity in repayments can help you achieve your target gradually.

(Note: Raising a personal loan has its own risks)