Getting approved for a personal loan when you have bad credit can seem challenging. Your credit score plays a big role in determining your eligibility for a personal loan and the interest rate you'll pay. So if you have a low CIBIL score, lenders consider you high risk and may deny your application.
But having bad credit doesn't mean you can't qualify for a personal loan in India. There are lenders who offer bad credit personal loans with more flexible eligibility criteria. The key is to understand what factors affect your chances of approval and take steps to improve your credit profile.
This comprehensive guide will explain how to get a personal loan with bad credit in India. We'll cover:
What is a Bad Credit Score?
Your credit score gives lenders an indication of how reliably you have repaid debts in the past. In India, CIBIL is the most widely used credit scoring system. It ranges from 300 to 900, with higher scores indicating better creditworthiness.
Here is how CIBIL scores are generally interpreted:
- 800 to 900 - Excellent
- 750 to 799 - Very Good
- 700 to 749 - Good
- 650 to 699 - Fair
- 550 to 649 - Poor
- 350 to 549 - Very Poor
Anything below 650 is considered a poor or bad credit score. This means you have a history of late payments, defaults, or other negative marks on your credit report. As a result, lenders see you as a high-risk borrower.
Why is Your Credit Score Important for Personal Loans?
Banks and NBFCs rely heavily on your credit score to make lending decisions. Here's why your CIBIL score matters:
- It gives lenders a snapshot of your repayment behavior based on your credit history.
- A high credit score (750+) indicates you are responsible with credit and likely to repay new loans on time.
- A low credit score signals higher risk, so lenders may deny your application or charge higher interest rates.
- Minimum credit score requirements for personal loans range from 650 to 750 at most lenders.
In short, a good CIBIL score makes it easier to meet eligibility criteria and get approved at lower interest rates. Bad credit means you have to look for lenders who are willing to take on riskier borrowers.
Factors That Affect Your Chances of Getting a Bad Credit Personal Loan
When you apply for a personal loan with bad credit, lenders look at various factors - not just your credit score. Here are some key considerations:
1. Your Current Credit Score
Lenders will check your latest credit score when you apply for a personal loan. The lower your current CIBIL score, the tougher it is to get approved. Check your score a few months before applying so you have time to work on improving it.
2. Credit Report
Lenders review your credit report from CIBIL or Equifax to check your payment history. Defaults, delays, settlements, written-off accounts - any negative remarks make approval difficult. Keep your credit report clean for at least 6 months before applying.
3. Debt-to-Income Ratio
Lenders calculate your debt-to-income (DTI) ratio based on your monthly income and expenses. A high DTI indicates you may struggle to repay new loans. Keep your DTI under 40% to improve your odds of approval.
4. Collateral
Secured personal loans require collateral like gold, property, or fixed deposits. This lowers lenders' risk. With bad credit, offering collateral can make getting a larger loan amount easier.
5. Length of Credit History
A short credit history (less than 6 months) negatively impacts your score and loan eligibility. Having an older credit account (2+ years) demonstrates you can use credit responsibly over time.
6. Type of Job and Income Stability
Lenders prefer salaried applicants from reputable companies. Self-employed or informal workers are considered higher risk. Provide income proof and stability in the same job for at least 6 months.
7. Relationship with Bank
Having accounts with a lender for several years helps. They can assess your cash flows and repayments. Existing customers may get better loan terms.
Now that you know what lenders look for, let's discuss how to improve your chances of getting a bad credit personal loan.
Tips to Get a Personal Loan with Bad Credit
Here are 8 practical tips to increase your chances of getting a personal loan approval despite bad credit:
1. Check Your Credit Report and Score
Start by checking your credit score and report from CIBIL or Equifax. Identify any errors or discrepancies and get them fixed. This can bump up your score. Recent hard inquiries, missed payments, etc negatively impact your score - so address those too.
2. Maintain Low Credit Utilization
Keep credit card balances low - ideally below 30% of the limit. High credit utilization negatively affects your score. Pay off debt instead of moving it around. Reduce dependence on revolving credit.
3. Become an Authorized User
Ask a family member with a long positive credit history to add you as an authorized user on their credit card. Their good credit behavior can start reflecting on your report and improve your score.
4. Avoid New Credit Applications
Each credit card or loan application triggers a hard inquiry on your report, which lowers your score. Avoid applying for new credit at least 6 months before your personal loan application.
5. Build Credit Mix
Have different types of credit accounts - secured and unsecured loans, credit cards, secured cards etc. This demonstrates your ability to handle different credit facilities responsibly.
6. Make Timely Payments
Set payment reminders and pay all credit accounts on time, every time. This builds a positive payment history. Even one missed payment can negatively impact your score and loan eligibility.
7. Pay Down Existing Debt
Lenders like to see lower debt obligations. Paying down credit cards and other loans improves your DTI ratio. Avoid taking new debt prior to your personal loan application.
8. Apply With a Co-applicant
Add a creditworthy co-applicant when applying. Their good credit score can offset your bad credit and improve the chances of approval. Make sure they have high income and limited debt.
Following these tips diligently in the months leading up to your loan application can significantly boost your approval odds.
Where to Get a Bad Credit Personal Loan in India
Here are some options to explore for bad credit personal loans:
Peer-to-Peer Lending Platforms
P2P sites like Lendingkart, Faircent, MoneyTap use technology to match borrowers directly with investors. They offer personal loans with low credit score eligibility starting from 600-650. Interest rates are competitive.
Digital Lenders
Technology-focused lenders like EarlySalary, LazyPay, Kissht use alternative data for credit assessment. This includes utility bill payments, social media activity, etc. They may approve loans at higher interest rates despite bad credit.
NBFCs
Some NBFCs like Bajaj Finserv, Fullerton India offer personal loans without income proof documents. Their underwriting relies more on property, business revenue, etc. But interest rates are steep.
Public Sector Banks
Large PSBs usually have higher personal loan eligibility criteria. But they offer secured loans against gold, property or fixed deposits even with bad credit. Interest rates are reasonable.
Credit Unions and MFIs
Community-based lenders like credit unions and microfinance companies may offer personal loans with minimal documentation. But loan amounts are small. Interest rates tend to be high.
Friends and Family
Borrowing from friends, relatives, or your employer is an fast and easy option. There are no eligibility criteria. But arrange legally binding paperwork for such loans too.
Explore lenders open to approving bad credit borrowers and apply strategically. Cast a wide net and compare interest rates and terms across multiple lenders.
Pro Tips to Get the Best Bad Credit Personal Loan Deal
Here are some pro tips to negotiate a good bad credit personal loan:
- Improve your credit score as much as possible before applying. A score above 650 can get better terms.
- Apply for loan amounts within your repayment capacity. Avoid rejections by seeking lower amounts.
- Offer collateral if you can. It shows commitment and allows negotiating better terms.
- Bring along a creditworthy co-applicant. Their income and credit record improves your overall profile.
- Leverage your relationship with existing lenders. Loyal customers may get approved more easily.
- Comparison shop. Evaluate terms, fees, and penalties across multiple lenders.
- Opt for the shortest tenure you can afford. This lowers total interest outgo.
- Make repayments on time. This builds your credit score and makes future loans easier.
With some disciplined credit habits and smart shopping, getting approved for a bad credit personal loan is very much possible. Follow the guidance in this article to secure financing despite low CIBIL scores.
Conclusion
Bad credit can make getting approved for a personal loan more challenging, but not impossible. There are lenders who offer specialized products for low credit score borrowers. The key is to maintain responsible credit behavior, control debt, and improve your CIBIL score. With time and diligent efforts, you can build your creditworthiness again.
Compare offers across banks, NBFCs, fintech lenders, and P2Ps. Look for the best interest rate and terms you qualify for. Offer collateral if you can, to get lower rates. Managing personal loans prudently can also help rebuild your credit over time. So leverage the financing to meet your needs responsibly.
FAQs on Getting Personal Loans with Bad Credit
1. How low of a credit score is considered bad in India?
A credit score below 650 is generally considered bad, high-risk, or subprime in India. Most lenders have a minimum cut-off of 650-750 for personal loans.
2. How can I rebuild my credit score quickly?
Pay all credit accounts on time, keep balances low, fix errors on your credit report, and avoid new loan applications temporarily. This can help rebuild your score within 6-12 months.
3. What is the eligibility criteria for bad credit personal loans?
Lenders consider factors like your income stability, debt levels, credit history length, and existing relationship along with your credit score. Eligibility criteria is more lenient than regular personal loans.
4. How to get a personal loan with low CIBIL score?
Opt for secured loans backed by collateral, get a guarantor or co-applicant, build your credit mix, and compare offers from NBFCs, fintech lenders, and P2P companies. They offer higher approval chances despite bad credit.
5. What is the maximum personal loan amount I can get with bad credit?
Loan amount depends on factors like income, debt level, credit score, and type of lender. Generally you may get Rs.50,000 to Rs.5 lakh with bad credit. Secured loans allow higher loan amounts despite poor credit.
6. How can I get a personal loan with low income?
Options include getting a guarantor, adding a co-applicant, pledging collateral, proving multiple income sources, and choosing lenders with low income eligibility criteria.
7. What is the lowest interest rate available on bad credit personal loans?
Interest rates vary from 13% to 25% p.a. based on your credit score, income, and lender policies. Secured loans have lower rates. Online lenders may offer competitive rates despite bad credit.
8. Should I take a loan from money lenders?
Avoid unauthorized money lenders as they charge exorbitant rates. Opt for regulated lenders so you get transparent terms, formal documentation, and legal recourse in case of disputes.
9. How can I get a low risk personal loan?
Tips to get a low risk personal loan include maintaining a high credit score (above 750), stable income, low debt, adding a guarantor, choosing shorter loan tenure, and borrowing a smaller percentage of your income.
10. Is it easy to get a personal loan with a 650 credit score?
A 650 credit score makes approval challenging but possible with certain lenders. Interest rates and charges are likely to be higher compared to borrowers with 700+ credit score.