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Business News/ Money / Personal Finance/  Credit score: How to get a personal loan with bad credit in India?

Credit score: How to get a personal loan with bad credit in India?

Securing a personal loan with a low credit score can pose challenges, but it's not unattainable. Nevertheless, anticipate considerably higher interest rates and fees in comparison to borrowers with favourable credit score.

Getting a personal loan with a bad credit score can be difficult but not completely impossible.Premium
Getting a personal loan with a bad credit score can be difficult but not completely impossible.

Although securing a personal loan with a low credit score can pose challenges, it is not an insurmountable task. Having either a poor credit score or no credit history can present considerable obstacles when seeking a personal loan with favourable terms. 

Challenges with a bad credit score

The following factors can present a formidable challenge for individuals with poor credit scores.

  • Diminished loan eligibility: Lenders interpret a low credit score (usually below 620 in India) as a signal of an increased likelihood of missed payments. This may result in restricted loan choices or outright loan rejection.
  • Elevated interest rates: In the event of approval, you'll probably receive loan offers with considerably higher interest rates in comparison to borrowers with favourable credit scores. This can markedly escalate the overall borrowing cost throughout the loan duration.
  • Stringent loan conditions: Borrowers with poor credit might encounter stricter loan terms imposed by lenders, such as abbreviated repayment periods or reduced loan amounts, thereby constraining flexibility.

Challenges with no credit history

Prospective borrowers without a credit history encounter difficulties such as

  • Insufficient information for evaluation: Without a credit history, lenders lack the necessary data to assess your creditworthiness and repayment habits. This absence of information makes it challenging to ascertain your risk profile, potentially leading to hesitancy on the part of lenders when considering your loan application.
  • Restricted loan choices: Comparable to those with poor credit scores, individuals lacking a credit history might encounter a limited range of loan options or potentially face elevated interest rates if approval is granted. The absence of a record makes it challenging for lenders to assess borrowing patterns.

Although obtaining personal loans with bad credit is feasible, it's crucial to exercise caution throughout the process. Typically, lenders may evaluate alternative criteria such as income stability and the presence of co-signers rather than solely relying on your credit score. Nonetheless, they frequently impose elevated interest rates.

For individuals without a credit history, it is advisable to construct it responsibly by either utilising a secured credit card or becoming an authorised user on an account held by someone with good credit standing. Consistently making timely payments will gradually establish a positive credit history.

Frequently Asked Questions (FAQs)

Q. What are some alternative options to explore if my credit score is unfavorable?

  • Establish your credit history by utilising a secured credit card or becoming an authorised user on the account of someone with good standing to develop a favourable credit record.
  • Consider having a co-signer with a strong credit history included in your application to enhance the likelihood of approval and potentially secure more favorable terms.
  • Consider alternative lending sources such as credit unions, peer-to-peer lending platforms, or microfinance institutions that may specialise in serving borrowers with poor credit, even though interest rates may be elevated.

Q. How can I enhance my likelihood of securing a personal loan with a less-than-ideal credit score?

  •  Enhance your credit score by consistently paying bills on time and reducing your credit utilisation, leading to gradual improvement over time.
  • Explore multiple lenders and compare their offerings. Avoid settling for the initial offer. Evaluate interest rates and terms from different lenders to identify the most advantageous option.
  • Borrow only within your means. Thoroughly evaluate your budget to ensure that you can comfortably manage the monthly payments before deciding to take on the loan.
  • Practise transparency and honesty. Provide accurate information about your financial situation when completing your loan application.

Q. What factors should you take into account before seeking a personal loan with a bad credit score?

Before seeking a personal loan with a poor credit score, it is essential to take note of several critical considerations:

  • Exercise caution with predatory lenders: Steer clear of lenders promoting seemingly swift and straightforward loans with excessively high interest rates and concealed fees.
  • Comprehend the loan terms: Before signing, meticulously read and grasp the loan agreement, which should encompass details such as the interest rate, repayment terms, and any associated fees.
  • Consider professional guidance: Explore the option of consulting a financial advisor or credit counsellor for personalised advice on managing your poor credit and assessing potential loan alternatives.

Q. Which alternative financing options might you contemplate before applying for a personal loan?

Before considering a personal loan, explore alternative options that may be better suited to your specific situation:

  • Engage in negotiations with creditors: Consider reaching out to your current creditors to inquire about the possibility of obtaining lower interest rates or establishing more manageable payment plans for your existing debts.
  • Explore credit counseling services: Non-profit credit counseling agencies can assist you in formulating a debt management plan and enhancing your overall financial well-being.
  • Investigate government assistance programs: Depending on your circumstances, you might qualify for government assistance programs designed to aid in managing your financial situation.
  • Boost your income: Explore opportunities to increase your earnings through a side hustle, freelancing, or negotiating a salary raise in your current job.
  • Contemplate utilising personal savings: If you have sufficient savings to address your requirements, using them is the most cost-effective option, as it circumvents additional interest or fees.

Q. What documents do I need to apply for a personal loan?

The necessary documents for a personal loan application can differ based on the lender, but the following are commonly requested:

  • Verification of identity: This generally involves providing one or more of the following documents:
  1. Passport
  2. Driver's license
  3. Voter's ID card
  4. Aadhaar card (specific to India)
  • Confirmation of address: This may necessitate submitting one or more of the following documents:
  1. Utility bill (electricity, water, gas)
  2. Bank statement
  3. Rental agreement
  • Verification of income: This may encompass the submission of:
  1. Salary slips for the past few months (typically 2-3)
  2. Employer's letter of employment or income verification
  3. Tax returns (for self-employed individuals)
  • Bank records: Lenders may require your bank statements from the preceding months (typically 3-6) to evaluate your financial status and spending patterns.


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Published: 04 Mar 2024, 07:42 PM IST
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