A personal loan is often a go-to option for managing financial emergencies or achieving big-ticket goals. However, a low CIBIL score can make obtaining a personal loan challenging. Banks and lenders typically view a low score as a red flag, signaling a higher risk of default. While it may seem like a roadblock, getting a personal loan with a poor CIBIL score is not impossible.
In this blog, we’ll explore 5 tips to get a personal loan with a low CIBIL score, as well as tips to improve your creditworthiness for future financial needs.
Why Does a Low CIBIL Score Impact Loan Approvals?
Your CIBIL score reflects your creditworthiness and financial discipline. A score below 650 is often considered risky by lenders. Here’s why:
- Higher Risk of Default: A low score indicates missed payments or over-leveraging of credit.
- Reduced Negotiation Power: Borrowers with bad credit have limited room to negotiate loan terms.
- Higher Interest Rates: Lenders compensate for the higher risk by charging higher interest rates.
To understand how your CIBIL score works, read What is CIBIL Score and Why is it Important? for a detailed breakdown.
Tips to Get a Personal Loan with a low or Bad CIBIL Score
1. Apply with an NBFC
Non-Banking Financial Companies (NBFCs) are more flexible with their lending criteria compared to traditional banks. While they may offer loans to individuals with low CIBIL scores, the interest rates may be slightly higher.
Benefits:
- Higher approval chances for low-score applicants.
- Faster processing and minimal paperwork.
2. Opt for a Secured Loan
If you have a low CIBIL score, consider taking a secured loan by pledging collateral such as:
- Fixed deposits (FDs)
- Gold
- Property
Benefits:
- Collateral reduces the lender’s risk.
- Easier approval even with a low score.
3. Include a Co-Applicant
A co-applicant or guarantor with a strong credit score can significantly improve your chances of loan approval.
How It Helps:
- The lender assesses the guarantor’s creditworthiness alongside yours.
- Sharing the repayment responsibility increases approval chances.
4. Approach Your Existing Bank
If you have a long-standing relationship with your bank, leverage it to negotiate a personal loan.
Why It Works:
- Banks may consider your overall financial history and loyalty.
- Pre-approved offers may be available even with a low score.
5. Show Proof of Stable Income
Providing evidence of a steady income can assure lenders that you have the financial capacity to repay the loan, even if your credit score is low.
Examples:
- Salary slips
- Bank statements
- Income tax returns (ITRs)
Lenders That May Offer Loans to Low-CIBIL Borrowers
- NBFCs: Bajaj Finserv, Fullerton India, and Tata Capital are known to approve loans for low-score applicants.
- Fintech Platforms: Apps like MoneyTap, KreditBee, and EarlySalary cater to borrowers with less-than-ideal credit scores.
- Peer-to-Peer Lending: Platforms like lendbox connect borrowers directly with individual lenders.
Risks of Taking a Loan with Bad CIBIL
While it’s possible to secure a personal loan with a low CIBIL score, there are risks involved:
- Higher Interest Rates: Lenders charge more to compensate for the perceived risk.
- Smaller Loan Amounts: You may not qualify for the full amount you need.
- Stringent Repayment Terms: Missed payments can further harm your credit score.
Steps to Improve Your CIBIL Score
If you’re not in immediate need of a loan, focus on improving your CIBIL score to secure better terms in the future. Here are four steps to improve your CIBIL score
- Pay Bills on Time: Timely payment of EMIs and credit card bills boosts your score.
- Lower Credit Utilization: Use less than 30% of your total credit limit.
- Avoid Multiple Applications: Frequent credit inquiries can lower your score.
- Check for Errors: Regularly review your credit report for inaccuracies. Learn How to Check Your CIBIL Score for Free and dispute any errors promptly.
Comparing Loan Options for Low CIBIL Scores
| Option | Pros | Cons |
| NBFCs | Flexible approval criteria | Higher interest rates |
| Secured Loans | Easier approval, lower rates | Requires collateral |
| Co-Applicant Loans | Shared responsibility improves eligibility | Co-applicant bears risk |
| Peer-to-Peer Lending | Direct negotiation with lenders | Limited loan amounts, varying interest rates |
Conclusion
A low CIBIL score doesn’t mean you can’t access personal loans. By exploring alternative options like NBFCs, secured loans, or co-applicants, you can still secure the funds you need. However, be cautious of higher interest rates and stricter terms.
While you work towards improving your score, remember that maintaining financial discipline is key. For more tips on recovering your score, read What to Do When Your CIBIL Goes Down? and start taking steps today. The sooner you improve your credit profile, the better your financial options will be in the future.
Some FAQs:
Can I get a loan with a CIBIL score of 650?
Yes, you can get a loan with a CIBIL score of 650, but options might be limited. Many lenders consider this score borderline, offering loans with higher interest rates or stricter terms. To improve your chances, look for NBFCs, fintech platforms, or secured loans. Check out our blog on how to improve your CIBIL score from 600 to 750 to improve your chances.
Can I get a loan with a 500 CIBIL score?
Getting a loan with a bad CIBIL score of 500 is challenging but not impossible. Fintech lenders or peer-to-peer platforms may offer small, high-interest loans. Opt for secured loans or improve your score to qualify for better options.
