Loans for Low CIBIL Score

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CIBIL Score for Personal Loans

CIBIL score is a credit score provided by CIBIL, which is one of India’s leading credit information companies. The score reflects a person’s credit history based on their financial behaviour. It includes loans and repayments, credit card payments, and more. The score ranges between 300 and 900; the higher the score, the healthier the credit history is.

A lower credit score can hurt your chances of being approved for a credit card, home loan, and other products. Usually, a credit score of 750 or more is considered excellent. People with a score over 750 can expect better approvals for financial services like loans. A score over 700 is decent while getting a personal loan for a CIBIL score of 550 or lower can be difficult.

Tips to Get a Personal Loan despite a Low CIBIL Score

Low CIBIL score does not always mean loan denial. Here are some situations when those who are new to credit or have low credit scores can also avail personal loans.

  • Have Adequate Disposable Income: If you are having adequate monthly disposable income to repay your personal loan EMIs on time, then the lender may approve your personal loan application despite having low credit score or being new to credit.
  • Check your Employer’s relationship with the Bank: Those working for reputed corporate/MNCs or public sector organizations have higher income certainty than others. Hence, lenders may accept the personal loan applications made by such applicants on the basis of their EMI repayment capacity, job stability and the reputation of their employers.
  • Consider NBFCs and Digital Lenders: Many NBFCs and new-age digital lenders offer personal loans to applicants with low credit scores, albeit at higher interest rates than banks and bigger NBFCs.
  • Apply with a co-applicant: Adding an earning family member as a co-applicant to the personal loan application reduces the credit risk for the lender. This is because the co-applicant also becomes equally responsible for the repayment of the loan. Hence, add a co-applicant if you are unable to avail personal loan due to low credit score.

Personal Loans with Lower CIBIL Score

Since personal loans are versatile and easier to acquire, people use them for many reasons, including buying a vehicle or remodeling the house, getting married, and repay their other loans.

While a low CIBIL score would reduce the chances of getting approved for a personal loan, it is not impossible. Other factors that affect your chances of getting a loan include your status of employment, income, and credit report. The report is a more detailed account of your financial history. A clean report suggests that you practice healthy financial habits and are not a risky candidate.

How to Increase your chances to secure a Bad Credit Loan?

  • Prove that you can repay the EMIs – Despite your low credit score, lenders may offer you a loan if there has been an increase in your earnings. Hence, if you can communicate to the lender that your earnings have increased and you can afford to pay the EMIs, there are high chances of them offering you a loan.
  • Provide Collateral – Providing collateral increase your chances to secure a loan as the risk associated with lending to you decreases. Lenders feel confident to offer you a loan as in the case of defaults, they can sell/auction the collateral to recover the loan outstanding amount.
  • Apply with a Co-Applicant – When you apply for a loan with a co-applicant who is creditworthy, your eligibility to secure a loan gets enhanced. So, when you have a low credit score and you wish to secure a bad credit loan, applying with a co-applicant is a good idea.

Parameters to fulfill to get a Low CIBIL loan

1. Calculate your Needs

Do not apply for a personal loan with a low CIBIL score if there is no need. You can use personal loan EMI calculator to get a better picture of how long will be required to pay EMIs at different interest rates. Based on these calculations, you can start your loan application process online.

2. Ensure all your Documents are in place

Personal loans require minimum documentation, so you only need to gather all the right stuff and ensure it is per requirements. It includes your proof of identity and residence, salary account bank statement for the past three months, and salary slips for the past three months. Self-employed individuals must furnish proof of income, proof of office address, and bank account statements from the past six months.

3. Do Research before you apply

A select few banks or financial institutions may be willing to offer personal loans for a CIBIL score of 550 or close to that. They may charge a higher personal loan interest rate. Find these banks and apply to only a select few. Applying to multiple places does not reflect well on your credit report.

Which Lenders offer Bad Credit Loans?

If you have a low credit score, pledging collateral can help you get a good deal on loans. Providing collateral lowers the risk associated with lending to you and hence, you can negotiate with the lenders to offer you lower interest rates. Such loans that are given against collateral/security are known as secured loans.

However, if you do not have any collateral to pledge and are looking for unsecured loans, you may be eligible for a loan if your monthly earnings are on a higher side and you work for a reputable firm. In such cases, banks will charge you higher interest rates and there are also chances of you getting lower loan amounts. For instance, if under normal circumstances, your loan amount eligibility is about 80% to 90%, it will be 65% to 70% because of your poor credit score. There are also chances that you will be offered shorter repayment tenures as banks will look at collecting the loan amount as soon as possible.

Apart from banks, there are two other options that you can try if you have a poor credit score and wish to avail a personal loan:

  • Non-Banking Financial Companies (NBFCs) – There are many NBFCs that will offer you a personal loan despite your low credit score but may charge a slightly higher rate of interest. Usually, NBFCs are more flexible than banks when it comes to credit scores. Some NBFCs have sanctioned loans for credit scores that are as low as 360.
  • Peer-to-Peer Lending (P2P) – There are some lending websites, called P2P websites, that offer loans of up to Rs.5 lakh with tenures ranging between 12 months and 60 months to people with low credit score.

Alternatives to Bad Credit Loans

  • Speaking to your current financial provider to offer you a tailored loan considering your circumstances. The current financial provider may be able to help you out in this regard than you going to a new provider for a loan.
  • You can get an overdraft on your current account at 0% interest rate for a certain amount. Never cross your limit on the overdraft as the unarranged overdraft fee will turn out be very expensive.
  • Credit unions that are community operated can offer a real alternative to banks to those going through financial difficulty. You need to be a member of the credit union to avail the loan. These organisations are supportive and their main intention is to serve their members.
  • Credit cards are another option that is available to those with a bad credit history. There are dedicated cards for the people with bad credit ratings. Though they may have lower credit limits or with higher interest rates. Also remember a failed application will damage your credit card further.
  • There are payday loans. But it is advisable not to take this loan.
  • Use your own savings for as long as you can. It is better to have used your saving than to pay the high interest those are being charged on loans.
  • The government also offers interest-free budgeting loans to those who can’t afford their rent. But those with urgent requirements only will receive the loan.
  • Turn to your family and friends for a loan. You can work out a mutually beneficial deal out and they will be much more understanding than any financial body. You can agree on a feasible interest. Be clear as to how you will make the repayment as there is a good chance that the relationship may be affected due to this. Agree on a certain time frame and commit to it.