Know how to get Personal Loan with low CIBIL score or bad credit

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Know how to get Personal Loan with low CIBIL score or bad credit
19 Oct 2023
6 min read

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In the realm of personal finance, a personal loan serves as a versatile solution to meet immediate monetary requirements, offering flexibility without rigid end-use restrictions.

However, the approval of such loans hinges significantly on an individual's Credit Information Bureau (CIBIL) score, a numerical representation of creditworthiness.

Traditionally, financial institutions prefer applicants with CIBIL scores of 700 or above. Yet, this article delves into strategies for securing a personal loan even when faced with a less-than-ideal CIBIL score.

Regularly monitoring your credit score is the first step, and keeping it above 650-700 improves your eligibility.

Exploring smaller loan amounts from specific financial entities, applying with a co-applicant, and building a relationship with your existing bank can bolster your chances.

Moreover, understanding the nuances of your credit report, such as "NA" or "NH," and addressing them with your lender adds another layer of strategy.

As personal loans continue to be a crucial financial tool, this guide navigates the landscape for those seeking funds, providing insights into a world where a low CIBIL score does not necessarily translate to closed financial doors.

Personal loan is the most convenient financial product to meet your immediate monetary needs, as they come with no end-use restriction. It is because of this feature, personal loans are availed for various purposes, such as to meet wedding expenditure, for higher education, vacations, debt consolidation and medical expenses, buying consumer durables products and much more.

CIBIL score plays a pivotal role in the loan approval process and lenders do check your CIBIL score before personal loan sanctioning. Most of the financial institutions usually expect the minimum CIBIL score of the applicants to be at least 700 or above.

If you have a low CIBIL score, it could be difficult but not impossible to avail personal loans from leading private and public sector banks. Do not worry if your CIBIL score is low or below lender’s expectations, as it can be increased with due course of time.

Read on to explore various options to get a personal loan even with a low CIBIL score.

Know how to get Personal Loan with low CIBIL score or bad credit

Check your CIBIL Score

Before we explain how you can take loan with low CIBIL score, it is important you keep a track of your Check CIBIL score online. This helps in being updated on your credit score and also gives you window to improve it before any financial emergency arises.

Any score below 650-700 may diminish the chances of your personal loan approval. Having a good credit score ensures that you meet the lender’s basic eligibility criteria.

Personal loan eligibility criteria shall vary from lender to lender; however, the factors that influence your personal loan eligibility include the following:

  • CIBIL Score
  • Monthly Income
  • Property’s Ownership
  • Existing credit/debt
  • Employer
  • Geographic location

Apply for Small Loan Amount

If your credit score is low, you can apply for a small loan amount with Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) and Small Finance Banks (SFBs).

Smaller loan amount helps you to repay the loan in lesser time resulting in enhanced repayment capability and improved credit score over a period. Any demand for a higher loan amount with low credit score shows your credit hungry behaviour and indicates more risk for the lender.

This eventually may lead to  loan application rejection and further dip in your CIBIL score.

Also Read : Payday loans and Title loans: what is one key difference ?

Apply for a Joint Loan

Applying with a co-applicant or guarantor reduces the risk for the lender in sanctioning funds. Prior applying for a personal loan you need to ask your co-applicant beforehand who has a decent CIBIL score with steady income.

This enhances the chances of your loan approval with minimum documentation and KYC formalities. You can apply for a Joint loan with your parents, spouse or siblings whosoever has a good CIBIL score.

Request your lender to consider NA/NH in your CIBIL report

Do remember that not every applicant starts with a high CIBIL score, as they need to build it from the scratch. People who are new to credit or have no credit history may witness NA (Not Applicable) or NH (No History) in their credit report.

This reflects the past 36 months of lack of credit or any credit activity in your CIBIL report. Still you can request your lender and explain the reason for the inactivity. Your personal loan application shall be approved but at higher interest rates. 

Build a strong relationship with your bank

It is an added advantage, if you maintain savings or current accounts or have a running fixed deposit or overdraft under your name with the bank you plan to apply for a personal loan. Despite your low CIBIL score, your existing bank may consider your personal loan application and approve it without much delay.

Key Takeaways:

Personal loan approval mainly depends on various factors, such as your income, employment status, employer’s stability and much more. Having a low CIBIL score could be a hindrance in the loan approval process.

Moreover, you might end up paying more interest rates on personal loans to lenders offering funds to applicants with low CIBIL score. Therefore, try to maintain a decent CIBIL score to avail personal loan at low interest rates and additional borrowing benefits.

To maintain a good CIBIL score you need to monitor your credit report regularly and check for errors. These errors whether minor or major need to be reported with the credit bureau and resolved at the earliest to avoid any further dip in your CIBIL score.

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