A lender would consider your credit history before giving you a personal loan. This is why a low CIBIL score could make it difficult to secure one. That said, personal loans for people with low CIBIL scores are available, and you can get one by following the steps below.
A personal loan can be a tremendous help when you need funds in a pinch. But before such a loan is sanctioned, you will have to go through various checks the lender performs. You can use the personal loan eligibility checker to get an estimate of the personal loan amount you are eligible for.
Among the first checkpoints that your application will have to cross is your credit or CIBIL score. But what is a good CIBIL score? And is a personal loan for people with low CIBIL score not available at all?
While it may not be as easy to get a personal loan with a low CIBIL score, you may succeed in getting one with some effort.
But first, let’s get an understanding of what a CIBIL score is and how it impacts your eligibility for a personal loan.
Your CIBIL score is an indication of your creditworthiness. The Credit Information Bureau (India) Ltd., also referred to as CIBIL is one of the credit agencies authorized by the Reserve Bank of India (RBI) to calculate this score for an individual.
A valid CIBIL score falls in the range of 300 to 900, with 900 indicating most creditworthiness. The higher your score, higher is the chance that your personal loan application gets approved.
Your CIBIL score depends on your repayment record on your existing debts. Timely payments on all your outstanding debts like your credit cards, loan EMIs, etc. ensures that you have a high score. However, defaulting on loan repayment results in a score reduction. Personal loans for CIBIL defaulters are more likely to be rejected than for someone with a healthy credit history.
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A high CIBIL score of 750 or more makes you an ideal candidate for any type of loan. Conversely, a personal loan for a CIBIL score of 550 or less may lead to rejection or a higher interest rate as you may be considered a ‘high-risk’ borrower, depending on the lender’s policy.
The lender will also consider your capacity to repay the loan which is determined by not just your credit score, but also other factors like bank balance, and job security.
Getting a personal loan for CIBIL score of 550 is quite challenging, but not impossible. The rate of loan application rejection is higher, but if you have a stable income source and working with a reputed employer that offers job security, the lender might consider advancing you a loan at a higher interest rate. Please note that different lenders have different policies regarding this. At Fullerton India, the minimum CIBIL score for a personal loan is 750.
If you have defaulted on a loan in the past and cannot provide a justifiable reason for that, or the loan amount is higher, the lender can reject your personal loan application. If you have a score of 550 and need a personal loan, it is advisable to try to improve your CIBIL score to 750 first, before trying to apply with multiple institutions. Alternatively, you can ask a close family member with a good CIBIL score and stable income to be the primary applicant.
Even though it is a challenge, you can still get a personal loan with a poor credit rating by taking the measures listed below:
You may have a low credit rating but with a hike in salary or possibly having an additional income source can make the lender more favourable to your loan application. Moreover, if you can show evidence that you have a secure job with a steady income flow, the likelihood of your loan getting approved increases too. Do note that you may be subjected to a higher rate of interest.
Your lender may perceive you as a high-risk candidate if you ask for a high personal loan amount with a low CIBIL score. From the lender’s point of view, your probability of defaulting on the loan repayment is higher.
If the amount of the personal loan is lower, the lender may be more inclined to grant the loan request. Also, the repayment of a lower amount will be far easier.
If you have a low CIBIL score, then getting a co-applicant or guarantor with a good credit rating can help you get the personal loan faster. With permission from your co-applicant or guarantor, ensure that the KYC formalities are completed along with the necessary signatures on the relevant forms.
When the lender sees a co-applicant or guarantor with a good CIBIL score on your loan application, it definitely helps towards getting a better deal.
You may be having a hard time getting a personal loan on a low CIBIL score. However, it is possible that there may be misreporting or errors on your credit report. In most cases, this happens because your record hasn’t been updated with the latest information.
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While it is not really your fault, mistakes such as these can cause unwanted issues. To get ahead of the issue, regularly check your CIBIL score. If you find any errors, ensure that you report them to the relevant authorities and resolve them quickly. Ultimately, it will also work favourably by raising your credit score making you a worthier candidate for a personal loan.
An inactive credit period in the last 36 months or absence of a credit period during the same period of time is marked by an NA or NH on your credit report. This translates into you not having a credit score at all in your CIBIL report.
Speak to your prospective lender and explain why there is a period of credit inactivity. It is possible that the loan will be approved with a higher interest rate.
Getting a personal loan without a CIBIL score is not possible. As personal loans are unsecured forms of a loan, it is difficult for a lender to determine the risks associated with lending to a borrower with no credit score.
You either have the option to start creating your credit history, which is again a long due process, or you can consider the following options. Please note that even these options will be challenging since most lenders insist on a good credit score before accepting a loan application.
Collateral Loan: You can opt for a loan by pledging your assets like saving certificates, gold, shares, and other valuables. It will also help you to start your credit journey and generate a credit report.
Peer-to-Peer Lending: If you’re looking for a smaller amount, the P2P lending is ideal for you, but it usually comes with a high rate of interest.
Using your Parent’s or Spouse’s Credit Score: If your parents or spouse have a good credit score, then you can raise a personal loan by adding your name to the personal loan application as a joint loan holder.
Get a Credit Card: If you are salaried and have a bank account, you can approach your banker for a credit card. However, if you are not eligible for one, you can consider getting an overdraft facility using a fixed deposit as collateral. Alternatively, you can apply for a joint credit card with a family member who is eligible for one. Timely payments of credit card dues and responsible usage will help in building towards a good credit score.
Using the above options, you can get a personal loan without CIBIL and meet the urgent requirement of funds, but it adds to complexities and a tiresome process.
The most ideal way is to first create a credit profile or improve your CIBIL score, before applying for a new personal loan.
Your CIBIL score is a significant part of personal loan eligibility. That said, other factors also play a key role in your loan application being approved.
Your best bet of getting a personal loan for a low CIBIL score is to try with the NBFCs, because they have more flexible eligibility criteria when compared to banks. If you have defaulted on a loan in the past for genuine reasons, be sure to explain that to the lender. As long as the reason is justifiable – for example a medical emergency– lenders may consider offering you the personal loan at a lower interest rate.
While these measures can certainly help you get you the personal loan even with a bad credit score, you still need adequate funds to repay it on time. If you default on the loan, your CIBIL score will plummet further down.
Alternatively, if you are having trouble getting a personal loan, you can also consider a loan against property.