Personal Loans without Credit Score: Perpetual Debt?

Personal Loans without Credit Score_ Perpetual Debt_

The sudden flush by the masses into the world of finance is not unexpected. Instant personal loans have now certainly become a means of instant gratification.

For any lending institution, personal loans are appraised by just the following factors:

(a) Source and quantum of income.

(b) Credit Score, i.e., the conduct of loans availed currently and that has been closed.

It is also to be well understood that when compared with loans such as home loans, vehicle loans, or commercial property-based loans, personal loans are totally different. As there is no asset creation, personal loans are symbolically treated as emergency use loans.

When loans without security go down, such as personal loans, the chances to recover the same as very thin. As a result, the lender covers the risk by charging a higher rate of interest. It is also prominent when one isn’t able to repay the loan, his credit score is hampered badly.

For fair reasons, someone who has defaulted on his loan shall be outright rejected by any lender for any loan.  However, the reality is quite different.

Those, who have, with or without any malafide intentions, have defaulted on their loans, can now be optimistic to avail another loan. Irrespective of how your credit score has performed, you can apply and even get accepted for one.

Availing a Loan Without or Low Credit Score

If you search the internet with the query “loans without credit score”, you will surely find several finance experts chipping in an idea or two. Further, there are some interest income hungry lenders also, that shall be giving a piece of sound advice to get accepted for the loan.

Tricks such as adding a co-applicant, trying for a lower amount, adding a guarantor, to check for any errors in the credit report (rarely the case), are being detailed by the loan experts. None of them is concrete, and for a wise lender, none can suffice.

While getting accepted has its pros like flushing one with liquidity, making one able enough to meet the emergent need, we shall focus on the non-obvious. The trade-offs that one makes while availing a loan even after having a bad credit score, are far more dangerous.

Let’s explore some reasons, where availing a loan, even after defaulting on one, can have serious consequences.

1. Higher Interest Rate

As already told, interest rates are the sole benchmark that defines the riskiness of a loan. Take a home loan, you shall be privileged with a low rate. Work out a car loan with a 3-5 year payment window, again a low-interest rate. In contrast, the fairy tale of low interest rates is not present while availing personal loans.

Vanilla personal loans are usually charged at 1.75 times to 2.5 times the rate of interest for home loans. For those, who seek to avail loans after defaulting on one, this can climb to 3.5 to 4.5 times the rate for home loans.

Read: Inconvenient Truth about Personal Loans

If you are struggling to make your ends meet, and seek a personal loan, you have just delayed, and maybe, amplified a personal debt disaster.

2. Credit Score takes another Plunge

For any bank, you are your credit score. Credit scores give a black and white picture of how well you have managed your debt. They don’t care from where you are making the repayment, how you are making a repayment. They just map the repayment and tag it along with your identity numbers, date of birth, and places where you have lived.

When one has already delayed payment or defaulted on a loan, every new inquiry for a loan, or every new loan added, is more like a nail to a coffin. The credit score algorithm would deem the borrower in a desperate liquidity crunch.  This would not only impact your credit score in a harsh manner but would also take a long time to normalize (if situations improve).

Let’s simplify the above in some more short questions:

Can I get loan without credit score? Can CIBIL defaulter get a loan?

Yes, you can. The interest rates would be high if you have not availed loan once or have defaulted and don’t want the lender to pay heed to your credit score.

Which bank gives a personal loan without CIBIL? Which app gives loans without CIBIL?

A lot of banks, and fintech startups are actually working hard with some algorithms to make you get a personal loan. They are trying to prove credit score being not the sole benchmark for lending.

NIRA: Instant Personal loan without CIBIL & Documents

How Should I Avoid Personal Loan Debt?

To avoid personal loans, one should stick to a proper savings plan as soon as one establishes a stable source of income.

Elizabeth Warren and 50/30/20 Rule for Personal Finance ManagementAvoid Paycheck to Paycheck

Regular savings, with bucketing for short-medium and long term, shall suffice for meeting almost all immediate and planned expenses.

Read: Elizabeth Warren and 50/30/20 Rule for Personal Finance Management

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