At the time of need, low-income salaried individuals often find it difficult to get personal loans. Those who are CIBIL defaulters are hit equally hard. A financial emergency can strike anytime unless one is prepared to face it with an emergency fund. While some could be prepared financially, not all could be in the same situation. The segments that get impacted the most are especially the low-income salaried and self-employed earners. Further, most of them have a low credit score and often rely on friends, relatives or colleagues to borrow money and some even have to borrow funds from neighbourhood money-lenders at exorbitant interest rates. If you are looking for a loan from a bank or an NBFC, you need to have a decent credit score. Getting a personal loan for CIBIL Cases may not be an easy task as they have a low credit score. “A credit score or CIBIL or EXPERIAN score is a criterion used by all the banks and shadow banks (NBFCs). Individuals who do not meet a certain score are auto rejected and therefore not allowed to even apply for a loan,” says Monish Anand, Founder & CEO of Shubh Loans.
What are the options
However, there are several fintech companies which provides personal loan for CIBIL defaulters or to those with low credit score. Essentially, fintech companies which are into providing loans with bad credit online do not rely entirely on the credit score of the borrower. “Unlike banks and NBFCs, credit bureau score is not a go / no go score for us. No doubt it is an important data point but not a definitive one,” informs Anand.
Low salary personal loans or loans to those with low credit score are left with very few options to get funds from a structured and organized places. For such individuals borrowing funds from money-lenders do not help in generating or creating a credit profile. Repaying capabilities of a loan taken from a fintech, in such instances, helps to build a credit profile as well. “Unfortunately, low-income individuals have very few lenders willing to give them a loan. Most banks don’t lend to anyone whose net salary is less than Rs 25,000 per month and NBFCs don’t lend to anyone whose net salary is less than Rs 20,000 per month,” says Anand.
The fintech companies make use of the technology in extending loans or credit to borrowers primarily based on the parameters set by their internal criteria. The new-age lenders backed with technology could soon change the model of providing loans to those whose loan application is rejected by the banks owing to low credit score. “Banks have a very preconceived notion of granting credit. They believe that capacity and intention to repay debt can only be assessed through limited data points. Hence, their lending practices are very straight-jacketed. In contrast, Fintechs think out-of-the-box by considering alternative data points that banks don’t consider. We believe that signals needed to evaluate a loan applicant needn’t come from 1 or 2 data points but rather from multiple data points. This allows Fintechs to gain higher approval rates than banks or NBFCs,” says Anand.
Low-income salaried individuals need to ensure that their repayment record will be of great importance in the long run. Timely payments of principal and interest with no defaults will help them improve their credit score. With a high credit score and with rising income, procuring car or home loans from banks for will become that much easier.