There is no credit score that you must have to get an unsecured loan. The requirements and credit score criteria may vary across providers. It means that if you get a loan from a loan company, it does not mean you will get one from another, too. The criteria are strict, especially in the case of bad credit rating loans. You must meet a set of terms to qualify in that case.
Precisely, you may get an unsecured loan if you can afford the loan payments. It is the basic aspect that decides the loan approval. Now, you must be thinking. So, what’s the point of having a credit score?” Let’s understand how a credit score matters in getting an unsecured loan.
What is an unsecured loan?
An unsecured personal loan is a financial facility which does not require collateral to qualify. It means you may get it by proving affordability with regular income and a good credit score. Individuals with credit scores above 881 may get the loan instantly. It reveals a good credit score and ability to manage finances without worries. You don’t need collateral or a guarantor in that case.
This ease of availability leads to competitive interest rates. You can use the loan for any needs, like credit card payments, car repairs, and home improvement. You can even consider one to consolidate your debts and get financial freedom. The payment terms stay fixed for a fixed or variable interest rate according to preference.
Why does the credit score matter?
A credit score is a 3-digit number that credit agencies provide to an individual after a financial analysis. They analyse your pending payments, total credits you have, employment history, rental history, citizenship profile, joint financial arrangements, bills, etc., to provide a score.
Individuals with missed payments, late payments or loan defaults have a low credit rating. Alternatively, people who practice the best financial management with paid bills, timely payments, long employment, credit, and rental history have good credit scores. Here is why it matters:
Help gauge the likelihood of loan approval
As mentioned above, the credit score reveals the strength of a person to get a loan. It showcases a person’s ability to repay the loan and meet the criteria and the basic documentation. For example, an individual with a credit score of 880 gets instant approval in comparison to one with a 530. The reason is the unreliability of timely loan payments.
Here, you can check the best unsecured loan lenders for bad credit scores. It increases the chances to qualify than the mainstream loan providers. Moreover, you may get the flexibility to repay the dues according to your comfort. It thus helps one achieve life goals without depending on savings alone.
Additionally, individuals with criminal records struggle to qualify. It is because past life events create unreliability in the face of current needs.
Helps decide the amount you can borrow
Have you ever seen a credit card company, a post office, or a loan provider offering exactly what you ask for? It is a rare possibility. No responsible loan provider would proceed with the application without gauging the affordability. A credit score plays an important role in calculating the potential.
Here, the credit score helps calculate the total pending payments you have. Then, the loan provider aligns it against the monthly expenses. Individuals with limited credit flexibility don’t get the amount requested. For example, if two different borrowers need £20000 for their needs:
| Parameters | Borrower 1 | Borrower 2 |
| Credit card | 5000 | 2000 |
| overdraft | 400 | - |
| Rent | 12000 | 12000 |
| Payday loan | 1500 | 1000 |
| Total | 12,600 | 15000 |
So, here, if the total credit capacity allowed for both persons is – £25000, borrower 1 may qualify. It is because he has more flexibility to manage another loan well. Borrower 1 gets the amount requested immediately, compared to Borrower 2. The latter may qualify for an amount slightly less than what he requires. Instead of £20000, he may get £17000 or less, according to the loan provider’s affordability parameters.
The interest rates you get
Yes, a credit score helps you identify the interest rate you may get.
Thus, you can clearly see the impact of credit score in deciding the loan interest rates. Yes, your previous and current financial arrangements affect it directly.
How to fetch low interest rates on personal loan with bad credit history?
It could be challenging to get a loan with bad credit scores. However, certain steps are needed to fetch better interest rates despite bad credit scores. Here are some aspects to follow:
- Pay off some debts before applying. It improves your credit score to an extent. Hence, you may be eligible for better interest rates.
- Apply with a loan guarantor. A guarantor enters an agreement if the primary borrower doesn’t qualify for the loan terms. He may also enter if you want to fetch affordable terms with really poor credit scores.
- Consider a secured loan for your needs. A secured loan involves pledging an asset to get a loan. It helps you get low interest rates compared to unsecured loans. It is an ideal option for a long-term or important life goal.
- Try to increase your income by switching the job. You can see the best packages you can get within the current skillset. Doing so makes you eligible for a higher amount at low interest rates.
- Keep your basic expenses less than what you usually spend. It decreases your credit utilisation rate and helps you fetch low interest immediately.
Can an unemployed get a loan for urgent bill payments?
Yes, an unemployed may qualify for an unsecured loan. You must have some payment mode to support the payments. You may qualify with a part-time earning source. It could be a freelancing income, earnings from rent, dividends, etc. Such aspects eliminate the need for a third-party guarantee or a guarantor.
Search for loans without a guarantor for unemployed people around you. However, you may get only a small amount for emergencies. No responsible loan provider will offer an amount higher than what you qualify for. Moreover, platforms like Safemoneyloan provide the needed flexibility to spread the loan payments in easy instalments. You can even halt it or pay part-payments for some time unless the situation improves. It grants peace on the part of the finances to unemployed people.
Bottom line
A credit score is a basic aspect that one must have to get a loan. It represents an individual’s financial management, credit payment potential and citizenship. Therefore, having one plays a critical role in unsecured or secured loan approval. Individuals with good credit scores may get instant approval with low interest rates. Alternatively, people with low credit scores struggle to fetch affordable terms or interest rates. However, the above strategies may increase loan approval chances.
