A small personal loan is an excellent way to build your credit history. More so than any other type of loan because it is sanctioned at smaller amounts; due to this, your chances of approval become high even if you don’t already have a decent credit history or score.

So, if you anticipate an expense coming your way, think of availing of small personal finance rather than denting your savings. This will have a twofold benefit. Firstly, you’ll keep earning interest returns on your savings. Secondly, timely EMI payments on your loan will quickly earn you a substantial credit score.

How does a small loan for personal use help build a credit history?

As a borrower, you’ll avail of small personal finance for at least a few months or a couple of years. This will have you pay regular monthly installments for an extended period of time. Making steady payments will not only create your credit history but also boost your credit score. It will open doors for any future loans you wish to avail.

Simply put, a credit history built on repayment of small personal finance today can make you eligible for a bigger personal loan or other types of loan to fund a big-ticket purchase tomorrow.

Additional read: Tips to Get a Personal Loan When You Don’t Have Credit History

How to increase my chances for loan approval without a credit history?

Personal finance is an unsecured loan, meaning you don’t need to pledge any collateral to avail of it. This is why lenders rely heavily on your credit history before sanctioning the loan. So, what’s a fresher with no credit history to do?

All you need are the following five things:

#1 Show a stable income source

If you have a stable job or business income, lending institutions will likely consider you a low-risk applicant, even without a credit history. Therefore, make sure you have salary slips with salary credited in a bank account for ideally 6 months before applying. This implies your credit worthiness. You can also include alternative income sources, if any, to strengthen your application.

#2 Maintain a positive relationship with your bank

If you are a current customer of the bank you borrow from and have maintained a good connection with them, you have a better chance of securing a small personal loan.

Long-standing relationships are useful in these situations.

#3 Get a co-applicant/Guarantor

Don’t have a stable income source, but are financially supported by another individual? Worry not; you can still apply for a small loan at affordable personal loan interest rates. All you need is a co-borrower with a stable income willing to file a joint application with you.

A guarantor will be responsible for repaying your small loan if you cannot do so. So, ensure your guarantor has a strong credit score and a good credit history to prove to the bank that they are a reliable source to grant you your small personal loan.

#4 Check whether your credit score Is truly low

Regularly reviewing your credit score is important to ensure that it accurately reflects your credit history. Sometimes, errors such as a misspelled name or missing updates can significantly impact your credit score, making it appear lower than it is.

Identifying and correcting these mistakes is crucial to maintaining a healthy credit score and obtaining a small instant loan with favorable terms is easier.

#5 Start with a low loan amount

Small personal finance is anyway offered at relatively lower amounts. It can start at a few thousand rupees and go up to a couple of lakhs. If you’re a first-time borrower with no credit history, begin at the lower end of the borrowing spectrum. By applying for a smaller loan amount, you can gain the trust of the loan issuer. This is because a lower loan amount is perceived to be less risky by lenders, due to which they may grant you a small instant loan.

By doing this, you’ll significantly increase your approval chances, that too, at low interest rates.

Additional read: Does the Purpose of Personal Loan Matter for Approval of the Loan?

Before you go

Build your credit history with small personal finance by Tata Capital. Our personal finance offering comes at affordable interest rates, flexible repayment tenures and minimal paperwork. You can also visit our official website or ping us on WhatsApp to start your online loan application.

So, what are you waiting for? Visit our portal, evaluate your potential installments using our personal loan EMI calculator, and apply today!

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