If you are dealing with a financial crisis or running short on funds, look no further than a personal loan. It is one of the easiest ways to get the funds to handle those emergencies or other financial requirements. With a personal loan, you can use the money for renovating your home, a family vacation, or settling outstanding credit card dues.
However, having a poor CIBIL score might make you wonder whether or not you would be able to apply for a loan without hassles. Don’t worry! Have confidence whenever you are applying for a personal loan for low CIBIL score!
But, don’t you forget that to qualify for a personal loan, meeting the eligibility criteria set by the lending institution is important? Your CIBIL score is what determines your eligibility, whether or not you are the right applicant for a personal loan.
Before we proceed further, let us first understand what a CIBIL score is.
Short for Credit Information Bureau (India) Limited, a CIBIL score is a unique three-digit number that is assigned to every individual by default when they apply for a personal loan for the first time. The credit score is a number that signifies your financial credibility. Based on your credit history, this unique score is assigned to you by CIBIL and other credit bureaus.
If you have an outstanding CIBIL score, it will indicate the fact that you have a better credit rating and that you are in a position to make loan repayments on time. This proves to the lending institution that you can make your loan repayments faster without any difficulties. So, they approve your loan application quickly and offer you beneficial loan terms.
A lending institution usually considers a score of 750 and above an excellent credit score. So, anything less than 600 is poor. These lenders may not approve your loan application if your CIBIL score does not meet their requirement for the minimum credit score.
In such a situation, there are ways you can consider to improve your CIBIL score. However, you can find several lending institutions that provide a personal loan for low CIBIL score.
What Does a Lending Institution Do When You Approach It for a Personal Loan?
Well, checking your credit score is the first thing that a lending institution does when you contact them to apply for a personal loan. This score is a reflection of your credit history and the credit amount you have availed in the past. It also determines your repayment abilities.
Since a personal loan is an unsecured loan or does not require collateral, a lending institution will have a second thought about whether it’s risky to lend the money to you. That is why they will evaluate your credit history and consider other factors that may or may not make you a trustworthy individual when applying for a personal loan for a low CIBIL score.
While it is not an uncommon perception that individuals having poor CIBIL scores are not eligible to apply for a personal loan, the fact remains that several lending institutions out there provide a personal loan to individuals with low credit scores.
Here is a table that gives you a better idea of a good CIBIL score and a bad CIBIL score:
Credit Score | Rating | Loan Approval Chances |
Below 600 | Very Poor | Extremely Low |
600 to 649 | Poor | Low |
650 to 699 | Satisfactory | Possible |
700 to 749 | Good | High |
Over 750 | Excellent | Extremely High |
How Does a CIBIL Score Work?
The way the CIBIL score works is similar to the credit score systems found in other nations. The credit bureau assigns a number to you, and it is somewhere in the range of 300 and 900. A three-digit number, which is between 300 and 900, is considered your score by CIBIL. This number is derived from the information that has been forwarded to the CIBIL bureau by the lending institutions or banks. This specific information is collected based on your repayments of various types of loans, such as a personal loan, a home renovation loan, a vehicle loan, and even a credit card. But you can look forward to having an outstanding credit score if you make all your payments on time.
Ensure that you avoid skipping payments when it’s time or failing to pay the credit or dues in time. That is because doing so could be harmful to your credit score. Once the score goes down, you will have a hard time getting loan approval from the bank or financial institution. Your utility bill payments would be included by the CIBIL bureau. This signifies that your credit score could improve or be adversely affected depending on the date or when you make payments for bills, including the phone, water, or electricity.
What are the Factors that Affect a CIBIL Score?
A CIBIL score is usually considered a sign of your financial habits, and these scores change based on how you deal with your credit cards and loans. But you must be aware of some factors that can unfavorably affect your CIBIL score.
1. Personal Loans: A personal loan is unsecured! If you take several personal loans at the same time, it can reduce your credit score.
2. Missing Loan Installments: Missing an instalment on a personal loan or a due date on your credit card bill is never considered a good thing to do. That’s because the lending institution may view it as poor financial planning. This denotes that your credit rating will be hampered eventually, making it tough for you to obtain a personal loan in the days to come.
3. Using Too Much of Your Credit: If you are getting close to using your full credit limit on your cards often, it is an indicator of constant debt. It is also a sign of your inability to manage money matters wisely, thus contributing to a decline in your CIBIL score.
4. Avoiding Timely Credit Card Payments: If you are somehow unable to make timely credit card payments, it can negatively affect your credit history. This is equivalent to your loan EMIs.
5. Leaving Debt on Credit Cards: You may have a notion that just by paying the minimum due on your credit card or somewhat more, you will be able to keep things under control. But this is not the case. While the banks or lending institutions may not have a concern about you having an outstanding balance, it is usually considered unfavorable by the credit bureau. For a bureau like CIBIL, an outstanding balance is never considered good. Needless to say, you don’t want to hurt your credit score, which may help you secure a loan in the future.
6. Lack of Credit History: For many individuals out there, having no loans or credit cards is a good thing. But it is not advisable to avoid using a loan or a credit card. Your credit score will not change at all unless you choose to obtain a personal loan or a credit card. Not having a credit history is not good. If you apply for a personal loan or a credit card, you will have to face rejection for your personal loan or credit card application.
7. Multiple Declined Loan or Credit Card Requests: Is your application for a loan or a credit card rejected? If so, you are likely to apply with another lending institution. Doing so will lower your credit score, and for two reasons. The first is that CIBIL considers a consistent loan or credit card application rejection a bad sign. The second reason is that your credit score falls every time a bank asks for your credit information from CIBIL.
8. Settling Outstanding Credit Card Amount: Have you settled any of your credit cards or negotiated with the bank to close the card? Did make pay half of the loan amount than what you actually owed to the bank? If that’s the situation, your credit history will be adversely affected.
APR Calculator
Having a hard time with a Low CIBIL Score? Stay calm! Getting a personal loan for a low CIBIL score is still achievable. You can make the APR Calculator work to your advantage for calculating the right interest rate.
Using a unique and flexible tool like an APR calculator will help you throughout, ānd for good reasons. That way, it will be easier for you to know the personal loan’s true cost. Aside from considering the interest, the calculator also includes the processing fees and other charges.
Avoid letting a poor credit score stop you! You just have to stay updated and be prepared. Use the APR calculator, so you can make wiser financial choices today!
Ways to Apply for a Personal Loan for a Low CIBIL Score
Do you have a poor CIBIL score, but require a personal loan on an urgent basis? Don’t worry! A reputable lending institution still allows you to apply for a personal loan for low CIBIL score. A traditional lending institution will always prefer an outstanding credit score. However, there are various alternative ways to get the loan approval.
Here is a list of how you can improve your chances when applying for a personal loan with a low CIBIL score:
1. Choose NBFCs or Fintech Lending Institutions
Lending institutions or NBFCs (Non-Banking Financial Companies) offer more flexibility with credit scores compared to banks. Many of them emphasize your income and the ability to make loan repayments.
2. Apply for a Lower Amount
When you place a request for a smaller loan, it improves the chances of loan approval. This is when you have a steady income.
3. Show Proof of Income Stability
Ensure you submit crucial documents, such as bank statements, salary slips, or freelance contracts. When you are making a stable income, it gives assurance to lending institutions that you can make timely loan repayments.
4. Add a Guarantor or Co-applicant
An individual with an excellent credit score, who is co-signing your loan, can make your loan application strong and effective.
5. Explain the Reason for the Low Score
Lending institutions may consider your application for a personal loan if there were defaults in the past due to a job loss or any medical emergency.
Even if you have a poor credit score, there is no need to give up. You have to act smartly and play smart when applying for a personal loan for low CIBIL score. You could still obtain the funds you require for your financial needs.
Wrapping Up
Getting a personal loan with a poor CIBIL score is a challenging task in itself. But don’t you worry? Obtaining a personal loan, even with a low CIBIL score, is now possible. When you diligently follow some useful tips, not only can you boost your CIBIL score, but also improve your loan approval chances. Making efforts to enhance your CIBIL score will benefit you not only for securing a personal loan but also for any transactions concerning credit.
Also Read – How to Increase CIBIL Score From 600 to 750
Frequently Asked Questions
Absolutely! You can secure a personal loan for low CIBIL score. However, lending institutions may consider various factors, including employment stability, repayment capacity, and high income.
If you want to improve your CIBIL score, you must ensure that you make payments on time, lower outstanding dues on credit cards, and maintain a low utilization ratio. Moreover, ensure that you never apply for numerous loans or credit cards simultaneously. Also, do check your credit reports for errors (if any).
When you have an ideal CIBIL score, it gives confidence to the lending institutions to approve your loan application. Moreover, you can negotiate with them for a great deal on interest rates, processing fees, and more.
Yes! The CIBIL score determines whether or not you will get a loan. You must have an excellent credit score to be able to apply for a personal loan without hassles. If your CIBIL score is poor, it is not something the lending institution expects, and they will simply reject your loan application.
The documents required when applying for a personal loan with a low CIBIL score include an Aadhaar card, PAN card, driving license, passport, utility bills, and more.
