Getting loans with a low credit score

A less than perfect CIBIL score can leave you wondering whether a bank would give you a loan or approve your credit card application. While it is indeed tougher than it would be with a higher score, you’ll find that it’s not impossible. 

Don’t panic if your credit score is less than perfect. While it may seem difficult to borrow money with bad credit, read on to know how you can avail of a loan even under these conditions.

What is a credit score?

Banks bank and other financial institutions gauge your credit worthiness through your Credit Score. It is a 3-digit number that ranges from 300 to 900 and is a barometer of your credit health. A score of 750 and above is considered to be a good score, indicating that lenders will look at your loan application favorably. 

A low credit score, puts your financial health at risk. That itself is reason enough to work on improving the score. Improving one’s credit score requires time and patience. 

The lending process with a low score

Given that your CIBIL score is not the only parameter that a lender considers when approving a loan, you can negotiate to get the best deal even if your credit score is low.  There must be a few factors in your financial profile which are stronger despite a low credit score. You just need to capitalize on that.

Good earning potential: 

While a lender may approve your loan application, it would be at a higher rate of interest than for someone with a good score. Of course, the bank would also look at your current employment details as well the loan amount you have requested for. Someone with unstable employment history, which would mean fluctuating income levels, may not be given the entire loan amount. A lender would evaluate income and the type of loan (whether secured or unsecured) as well as the loan amount before taking a decision.

If you have stable income with good earning potential, it is likely that the lender may approve your loan, despite a low credit score.

Tips to get a loan with a low score

Here’s how you can get a loan even with a low credit score:

  • Consider an NBFC: A bank may not be as flexible with their approvals as an NBFC. Consider applying to one, but do keep in mind that the rate of interest might be higher here. Compare all available options to get yourself the best deal.
  • Consider alternate lending solutions: Peer-to-peer or P2P lending websites provide small ticket loans, often without collateral to a profile with a low credit score. Besides paperless disbursals and flexibility in terms of loan tenure, these platforms also offer competitive interest rates. 
  • Improve your credit score: Don’t let a low credit score become a regular part of your financial life. It’s ideal if you can work towards building your score before applying for the loan itself, but if not, work on improving it over a period of time.
  • Apply with a guarantor or co-applicant: Get a co-signer or co-applicant on your loan application. If they have a strong credit history, your application is more likely to go through. However, this means that the person signing for you is equally responsible for loan repayment.
  • Opt for a secured loan: If you have a low credit score, then banks may still provide you secured loans wherein you would be expected to pledge collateral or security. These collaterals include shares, property, fixed deposit, gold and many other assets. A lender is more likely to approve the application since they know they can repossess the asset in case of a loan default. 

The bottom line

While keeping the above tips in mind, it is important that you start working on your credit score, since it largely determines your financial future. Take the necessary steps to improve and build your credit score. Rectifying your credit health will take time but is the best way to avoid loan rejections in the future. 

Credit Triangle is a one-stop solution for all your credit and finance needs. We help you with credit health management, repair and improvement.