How to Get a Personal Loan for a Low Credit Score?

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Personal Loan for a Low CIBIL score

Facing difficulty in securing a personal loan? A low credit score might be the reason behind it.

Lenders or non-banking financial companies check your credit score to measure if you can repay the loan on time. If you have a good credit score, the loan approval process will be less taxing. However, a low credit score might make things challenging.

But, hey! A low credit score isn't a dead-end. Read along to understand what credit score means and how you can navigate the loan application process even with a low credit score.

Credit Score And Its Impact On Personal Loan

A CIBIL score, also known as a credit score, is a three-digit number that reflects your credit history and financial habits. It ranges from 300 to 900 and shows how well you've managed credit before. Lenders, like banks or NBFCs, use this score to gauge if you're trustworthy as a borrower. You can check your credit score for free through INDmoney.

A good credit score suggests you're likely to repay a loan on time, making lenders more confident in approving you. On the other hand, a low CIBIL score might make them cautious, thinking you might be a credit risk.

Credit Score RangeDescriptionLender's Perception
750-900ExcellentExceptionally Reliable
650-699FairModerately Risky
600-649BadHighly Risky
Less than 600PoorUn-Reliable

For instance, an individual with a CIBIL score of 550 might find it challenging to secure a personal loan from traditional banks. However, with a score hovering around 650 or 700, some NBFCs might still entertain your application. 

But, and it's a significant 'but', several other factors come into play:

Ways To Get A Personal Loan With A Low Credit Score

Give Proof of Sufficient Spendable Income

Your monthly income isn't just a number. It indicates your repayment capacity. Lenders often weigh your disposable income to determine if you can manage loan EMIs without financial strain. 

A robust and steady income can sometimes compensate for a low credit score, especially if you don't have a credit history. Demonstrating a substantial monthly disposable income can put the odds in your favour.

Have Steady Employment at a Respected Company

Beyond just the monthly pay, where that pay comes from matters too. If you're employed with a well-established organization or a reputed firm, it can enhance your credibility in the eyes of the lender. The logic? A stable job often translates to regular income, reducing the risk of loan defaults.

Co-Apply with a Good-Credit Partner

Adding an earning family member, particularly one boasting a healthy credit score, as a co-applicant can be a game-changer. This shared responsibility not only reduces the lender's risk but can also boost the overall eligibility of the loan application.

Showcase Other Income Sources

If you have rental income, freelance earnings, or any other source of regular income apart from your regular job, make sure you highlight that. Diverse income streams can paint a better financial picture and make lenders more comfortable.

Avoid Multiple Loan Applications

Each time you apply for a loan, the potential lender checks your credit score, which can lead to a slight drop in your score. Avoid making multiple applications in a short span. It reduces your score and makes you look desperate, making lenders wary.

Why Is Your Credit Score Low?

Several factors can drag down your credit score. Some of the common culprits are:

Factors Weightage
Payment History30%
Credit Exposure25%
Credit type and duration25%
Other factors20%

Late Payments

  • Your payment track record contributes the most to your CIBIL score, making up about 35% of it.
  • Missing out on your credit card bills or loan EMIs, even once, can impact your score. Consistent delays paint a picture of an unreliable borrower to potential lenders.

High Credit Utilisation

  • The credit utilisation ratio measures how much credit you're using against your overall limit. For instance, if you're using ₹80,000 out of a credit limit of ₹1 lakh, that's an 80% utilisation.
  • A high ratio, typically over 30%, can be a red flag, suggesting you might be inching towards financial strain or over-reliance on credit.

Unsettled Debts

  • Defaults and unsettled debts can severely hurt your credit score.
  • Having any outstanding payments reflects poorly on your creditworthiness.

Frequent Loan Inquiries

  • Every time you apply for credit, a "hard inquiry" is made, which can cause a slight dip in your CIBIL score.
  • Too many of these in a short time can indicate financial desperation or poor money management, leading to a more significant dip in the score.

Remember, having a low credit/CIBIL score isn't the end of your loan aspirations. With the right knowledge and approach, doors can still open for you. Stay informed, make smart moves, and remember, your financial journey is always in your hands. Keep pushing forward! 

For more insights on personal finance, keep a watch on our future articles

Key Takeaways

  1. Your CIBIL score reflects your past credit-related decisions.
  2. Even with a low CIBIL score, securing a personal loan isn't impossible, but understanding the score's components can help improve it.
  3. Late payments, high credit utilisation, unsettled debts, and frequent loan inquiries can adversely affect your score.
  4. A stable income, reputable employment, and a reliable co-applicant can boost your loan application process.
  5. Some lenders, like NBFCs, might offer personal loan to people with low credit scores.
  • Can errors in my credit report affect my CIBIL score?

  • How can I check and get my credit/CIBIL score online?

  • Are there loan options that don't require a CIBIL check?

  • Do all lenders require a minimum CIBIL score for a personal loan?

  • Can I get a personal loan with a low CIBIL score?

  • How do I improve my chances of getting a loan with a low CIBIL score?