Credit is a great tool to advance in life by buying a house, a car or even as capital to start a business.

However, Covid has impacted many of the individuals salaried and self employed monetarily. Job loss, salary reduction, loss in business and others. This straightaway impacted the financial institutions as existing borrowers especially low income earners were unable to repay the EMIs because of the reasons mentioned. And this has forced the lenders to become very strict and more cautious when lending money to the new customers.

Before giving you a loan, the bank evaluates your background to determine if you can pay the amount requested plus interest, and under what conditions. If you are a low income person, you will be more risky for the bank – in theory – so you will have to pay more interest.

The good news is that there are several things you can do to show that the bank can trust you. And in this post we will discuss how to get credit if your income is low, in 2021.

(1) Prove Repayment Capacity

It’s not about earning a high salary, because the bank lends you the amount you can afford. It’s about how to prove the ability to pay.

A person’s reasonable indebtedness should not exceed 40% of their monthly income. A variable salary is a risk factor for the bank, so a person who has a stable job and fixed earnings is more likely to obtain credit, within his capabilities.

If your income is still not enough, you can submit bank statements or pay slips from occasional jobs you’ve done to supplement your income. This is done by many as there are various options of generating new sources of income.

The question is how to prove stable income or a fixed salary, which is related to the next point.

(2) Prove Job Stability

The idea here is to demonstrate responsibility, commitment and reliability. In other words, that you are a person capable of keeping a job and change your job only when you have good reason to do so.

That’s why layoffs on your employment history are another risk factor for banks. If you change jobs too often it means that at least a couple of months will pass before you will be able to pay off your credit. You will have more important expenses to cover such as rent or dividends, food, etc.

How do you prove job/business stability?

If you are a dependent worker, you must present a copy of your permanent work contract and your last three salary slip. Remember not to fake salary statements for loan.

If you are self-employed, the bank will ask for other details. E.g. your business or activity must have been running for at least two years on a stable basis. You must submit at least two years of IT returns.

(3) Prove Assets Ownership

Banks ask you to prove equity to recover all or part of the amount borrowed if you cannot repay. This is known as asset forfeiture. In simple terms, your estate is all the assets with monetary value in your name.

The most common examples are vehicles or property such as land or your home. If you are buying your home or apartment with a mortgage, that counts as equity in your name and increases your chances of getting a loan.

The same is true if you are buying a car or other vehicle in your own name.

(4) Supplement with Family Income

If your personal income is too low, you can supplement it with the income of your direct family member: spouse, parents, siblings and children. It is defined as the sum of all the income earners of family members which can be salary from permanent or part-time jobs, other regular income and others.

The more earning people in your family, the better as it shows they can repay. The important thing is to gather all the documentation that demonstrates this income, for each member of your family. That is to say, work contracts, IT returns, bank statements, offer letter and others for the work done.

Check out: Easiest credit cards to get

(5) Try for Joint Loan or Guarantor

Let’s start by saying that they are not the same, but they take an important responsibility because they commit to pay for you if you can’t. Therefore, they must also meet all the requirements detailed above.

Joint Loan: A joint debtor is a person who shares the loan with you in equal parts. In case of non-payment, the bank will collect the debt from both of you, even if the co-debtor is not the holder of the loan.

If the co-debtor’s economic situation is better than that of the primary debtor, the institution that granted the credit will not hesitate to sue him/her directly.

Guarantor: Is the person to whom the bank will collect the unpaid fees or the entire debt if you, as the original debtor, fall into default. Often it’s a family member.

Having a joint debtor or guarantor can increase your chances of getting a loan. Whatever the case, you should choose this person very carefully and make sure they know the situation before you sign.

You should also make sure he or she does not have a history of unpaid credit, which leads us to the next point.

(6) Stay out of Bad Books of Credit Bureaus

Being in the bad books of credit bureau is the kiss of death to ask for credit. It’s the same as saying “this person doesn’t pay his credit, don’t lend him money”.

Credit bureau is a company that sells borrower information to banks, companies and commercial houses. Therefore, if you appear as a debtor, they won’t give you credit.

Therefore, if you want to apply for a loan, and you do everything to get out, the first thing you must do to increase your chances is to obtain the certificate that states that you have left the register of defaulters.

To do this, you must go to your bank and ask for a certificate stating that you have cancelled all your debt.

Conclusion

In order to access credit, it is more important to demonstrate the ability to pay, regardless of whether you have a low level of income. As long as you prove to be a responsible and reliable person, you will considerably improve the chances of obtaining a bank credit.

But banks are not the only ones that lend money to people. There are also other types of entities that offer personal loans such as peer to peer lenders, mobile wallet companies, fintech companies, private money lenders and others.

Author Bio:

I am Nikesh Mehta, owner and writer of this site.

I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.