Looking for low credit score loans?
Here’s what you need to know. We have some good news, bad news, and helpful insights that can help you to secure your next personal loan.
Here we go.
Can you get a personal loan with a low credit score?
Yes, you can get a personal loan with a low credit score in South Africa, but it may be more challenging. Borrowers with bad credit scores can seek out loan offers with strict repayment terms or try to leverage stable income, employment, and relationships with the bank to improve the chances of approval.
That’s the good news.
Here’s the bad news.
Loans that get approved despite a low credit score cost more to repay. Banks approve these loans by minimising their risk through high-interest rates and unfavourable repayment terms.
Getting approved won’t be easy, so be prepared to do a little extra work.
Take a second to go through the rest of this post. It’ll help improve your chances and guide you toward a successful application.
Let’s start with a quick definition.
What is a personal loan?
A personal loan is a loan that the borrower can use for any purpose, and because a personal loan isn’t backed by an asset like a car or a home, it is classified as an unsecured loan.
It is unsecured because there’s no asset that the lender can use as collateral if the borrower doesn’t promptly repay the loan. This makes it more risky for lenders, which is why it is harder to get approved with a low credit score.
Let’s explain the relationship between a borrower’s credit score and the risk associated with lending money to someone with a low credit score.
What does it mean to have a bad credit score?
When a person has a bad credit score, it indicates that they have a poor credit history. This means that their credit history reflects late payments, defaults, high levels of debt, an over-reliance on credit or other financial missteps.
Nowadays, someone with a lousy credit score could be considered ‘blacklisted’ (here’s how to check if you are ‘blacklisted’, or, more appropriately, have credit restrictions).
Lenders rely on credit scores to determine risk.
- High credit scores = low risk and a higher likelihood of repayment
- Low credit score = high risk and a higher likelihood of late payment or default.
Struggling to keep up with your debt?
Our team can help make your debt affordable once again.
We help thousands of South Africans to reduce their monthly debt repayments, protect them from legal action, and keep their assets — our team can help you too.
Understanding credit score ranges
Credit score bands typically range between 0 and 999 or 1200 (depending on the credit bureau).
You can use these ranges as a rule of thumb to determine whether you have a bad score or not.
- Excellent: 700 or above
- Good: 650-699
- Fair: 600-649
- Poor: 550-599
- Very poor: Below 550
Still with us? Good. Let’s continue.
What is the minimum credit score required for a personal loan?
There isn’t a defined minimum credit score requirement for personal loans. It varies by lender. However, a benchmark of at least 600-640 could be considered a minimum. Most lenders prefer to approve loans to borrowers with scores within or above this range.
It is possible to get a loan with a credit score below this range, but the bank may charge more as a result.
Minimum credit score
Most lenders prefer borrowers with a credit score of at least 600-640.
Next, we’ll share a smarter approach. One that involves taking care of existing debt first, improving your credit score, and finally applying with a stronger score to get the best terms so your loans cost less.
Introducing debt counselling and debt review.
How to take care of your debt with debt counselling
Banks use less favourable repayment terms and higher-interest rates to reduce their risk, which means that high-risk borrowers end up paying more to borrow money.
Read that again. Do you see a problem there? We do.
The fact that people with bad credit scores pay higher interest rates means that loans and credit cards cost them more money. It’s a vicious cycle.
Here’s how it goes:
You can’t repay your debt, so your credit score gets worse. Then, banks raise the interest rate on any new loans, making your new debt even more expensive. This makes it even harder to keep up with expensive debt repayments, and so things continue to get worse.
The only way to stop this cycle is to get out of debt.
Debt counselling (debt review) is a financial service that helps over-indebted South Africans to reduce and repay their debt.
Debt counselling (debt review) offers several other advantages, such as consolidated debt repayment, safeguards against repossession, and legal protection.
Hundreds of thousands of South Africans rely on debt counselling (debt review) to help make their debts more manageable and escape the debt cycle.
If you want to get out of the vicious cycle of over-indebtedness, low credit scores, and unfair loan repayment terms, then start by taking care of your debt.
The good news: you can get a personal loan with a low credit score.
The bad news: personal loans cost more when you have a bad credit score.
Do your homework to find a lender that’ll approve your loan or (even better) take care of your debt and build up your credit score first.
At My Debt Hero, we help thousands of South Africans to reduce and simplify their debt repayments, making debt affordable once again, and we’d love to help you.