Did You Know?
We serve loans, the best way you can borrow
Personal loans have become quite common in India. People take personal loans when they need funds for medical emergencies, home repairs, debt consolidation, and other expenses. But when you apply for a loan, the first thing that is checked by the lender is your credit score. Getting a personal loan is quite tough when you have a low credit score because lenders generally prefer borrowers with a high credit score.
But you need not worry, as the truth is getting a personal loan for bad credit is tough but not impossible. Lenders in such cases will review factors beyond credit score, like your income, employment history, existing EMIs, etc. If you understand properly how lenders evaluate applications, then it can help you improve your chances of loan approval.
In this blog, you will get complete information about a personal loan for bad credit, which includes eligibility requirements, interest rates, approval factors and practical tips to improve your chances of securing funding.
A credit score is a three-digit number that describes your creditworthiness. It reflects your credit history based on your financial behaviour. This includes loan repayments, credit card repayments and more. The score ranges from 300 to 900. Lenders classify it as below: -
A score of 650 or less is generally considered bad credit by lenders in India. Borrowers with low credit scores will have to face high interest rates, stricter eligibility requirements or loan rejection. But this never means that you will not get a loan at all.
The interest rate on your personal loan depends a lot on your credit score. Borrowers with bad credit are offered higher interest rates.
| Credit Score | Average Interest Rate |
|---|---|
| 750 and Above | 10.73% – 12.50% |
| 700 – 749 | 13.50% – 15.50% |
| 650 – 699 | 17.80% – 19.90% |
| 550 – 649 | 28.50% – 32.00% |
These are average rates. Actual interest rates can differ depending on credit profile, income level, loan amount and employment profile. Borrowers can get lower interest rates for their loans.
With low credit scores, you may feel that you won’t be able to fulfil your financial goals. You may feel that it's impossible to get a personal loan with bad credit. But you need not worry, as there are several lenders who consider your situation and offer you a loan. Here is the eligibility criteria offered by the majority of lenders: -
Some lenders who offer bad credit loans in India have more flexible eligibility conditions than traditional banks.
It's not so easy to find a lender who trusts you, even though you have a low credit score. But the right documentation is what can make a difference when applying for a personal loan with a bad credit score. Here are the documents required for the loan: -
Some lenders can ask for additional documents for bad credit loans, like proof of assets or a co-applicant’s documents.
Yes, it’s possible to get a personal loan with bad credit. Here are some strategies that you can try: -
1. Rectify Any Mistakes on Your Credit Reports
You shall review your credit report carefully. Your credit report can have errors like incorrect payment records, loan paid but not updated, or duplicate loans. This can have a negative impact on your credit score. You can get this error rectified by reporting it to the credit bureau. This will improve your credit score.
2. Apply for a Personal Loan with a Cosigner
If you have bad credit, then you can apply with a cosigner who has a good credit history. This assures lenders and reduces the risk. Their financial profile can increase the approval chances and help you get a loan at better terms.
3. Get an Unsecured Loan for Bad Credit
There are some lenders that offer loans for bad credit history without any need for collateral. These loans are easy to access, but they are offered at high interest rates as there is increased lending risk.
4. Get the Loan Using Collateral
If you have a low score, then you can also consider applying for a loan with collateral. By providing collateral like a fixed deposit, property or investment, you can reduce the lender’s risk. Secured loans also have better loan approval chances and are offered at lower interest rates.
5. Show All Your Sources of Income
You can show all sources of your income when applying for a personal loan. This includes rental income, freelance income, or business income. This can strengthen your repayment capacity.
Many lenders may reject your loan application if you have a bad score. But lendingplate doesn’t just rely on credit score but also looks at other factors for loan approval. The loan application process is simple and online. It just takes a few minutes to complete the application.
The loan is approved and disbursed quite quickly. The staff will treat you with courtesy and respect. They will not focus on your past repayment mistakes. They will help you get a personal loan with better rates and terms.
Understanding why your score is low can help in reducing future credit problems.
1. Late or Missed Payments
Your payment history is the single largest factor in your credit score. Even if you miss one payment, it can affect your credit score.
2. High Credit Utilisation
If you are using too much of the credit limit available to you, then it signals financial stress. This can lower your credit score.
3. Too Many Credit Applications
Whenever you apply for new credit, a hard inquiry is run on your profile. If you apply for too many loans and credit cards in a short span, then it can negatively impact your credit score.
4. Limited Credit History
A short credit history gives little data to the credit bureau to assess your repayment capacity. New borrowers generally have low scores because they lack a sufficient track record.
5. Defaulted Loans
Loan settlements and loan defaults can severely damage your credit score. This remains on your credit report for years.
You don’t have to be stuck with a low credit score for a lifetime. You can improve your credit score by following the tips mentioned below: -
1. Make Payments Timely
Always pay your EMIs and credit card bills before the due date. You can set up auto-debit so you don’t miss the deadlines.
2. Reduce Outstanding Debt
Make payment of high balance credit cards first. This will reduce the utilisation ratio, which can impact your score.
3. Avoid New Credit Applications
Each new application reduces your credit score. Hence, you shall avoid applying for new credit for at least a few months.
4. Review Credit Reports Regularly
Check your credit report regularly from the credit bureau and report inaccuracies. Catching errors and disputing them can improve your score.
5. Use Secured Credit Cards
Start using secured credit cards backed by fixed deposits. This will help you build a positive credit history over time.
Banks generally reject bad credit loans without understanding your actual situation. Lenders like lendingplate look at various factors that make you reliable. Here are the key factors that lenders check before approving your loan application.
1. Steady Income Stream
A consistent monthly documented salary or business income is the most important alternative signal to the lender. It tells the lender that you have the repayment capability.
2. Employment History Length
Long tenure with a single employer reflects financial stability and job stability. It reduces the risk and assures the lender that you can repay the EMI each month.
3. Current Debt Amount
Lenders also check your current debt level to determine your borrowing capacity. If you have too many debts, then it can lead to loan rejection.
4. Recent Credit Activity
Multiple credit inquiries can damage your score. Whereas recent timely repayments can have a positive impact on lenders when reviewing your application.
5. Alternative Credit Proof
Utility bill payments, rent payments and mobile phone payments can be useful as alternative proofs when traditional credit history is lacking.
Here are the practical tips that can boost your chances of loan approval even with bad credit: -
1. Check Credit Report
Get your free credit report before applying for a loan. Identify errors and get them rectified. This can improve your score.
2. Build Savings First
Having savings reflects your financial discipline. It can give a positive view to lenders. Hence, you shall save a few months of money before applying for a loan.
3. Reduce Existing Debts
Close your existing loans and pay off your credit card balances. This will reduce your debt-to-income ratio, which improves approval chances.
4. Add Co-applicant Option
You can add your family member as a co-applicant. Select someone who has a consistent income and good credit. This will reduce the lender’s risk as both are equally responsible for payments.
5. Offer Security Deposit
You can offer a security deposit to the lender. This reduces the lender’s risk and shows your commitment towards loan repayment. These deposits get returned after you complete the loan.
Borrowers who are looking for personal loan bad credit instant approval options shall focus on strengthening these factors before applying for a loan.
If you want to make a smart money choice, then you have to understand both the benefits and the risks. Here are the benefits and risks of a personal loan with bad credit: -
1. Fast Money Access
Immediate loans for bad credit from NBFCs and fintech lenders are processed within 24 hours. This makes it ideal for financial emergencies.
2. Flexible Usage Options
Personal loans come with no end usage restriction. You can pay medical bills, renovate your home, and travel abroad with these funds.
3. Credit Score Improvement
When you make timely repayment of a loan, it can improve your credit score. It reflects your financial behaviour to future lenders.
4. Higher Approval Likelihood
Specialised bad credit lenders assess your full financial picture and do not just rely on your credit score. They use alternative assessment methods, which improve your loan approval chances.
1. Higher Interest Costs
Bad credit loans are offered at high interest rates. This means you will have to pay a higher repayment cost over the loan tenure.
2. Strict Payment Terms
If you miss any payments, then it can lead to serious consequences. You will have to pay penalties, and it will also damage your credit score.
3. Debt Cycle Danger
Taking additional loans to pay the existing ones without a proper repayment plan can increase financial stress. It can get you into a debt cycle.
At times, despite following all the hacks, you may still face difficulty in getting traditional personal loans. In such cases, you can go for alternative options: -
1. Secured Credit Cards
These cards can help you in rebuilding your credit while providing limited access to funds. Firstly, you will have to deposit the money for this. After this, you can use it to make payments.
2. Credit Union Loans
Some co-operative credit societies and credit unions offer more flexible loan options. Their main aim is to help members rather than maximise profits.
3. Peer-to-Peer Lending
P2P platforms directly connect borrowers with investors who may consider factors beyond credit scores. These platforms may offer loans at competitive rates depending on your income and profile, rather than your credit scores.
4. Secured Loan Options
You can use collateral for borrowing. Property, gold and investment can be used as collateral to get a loan. These loans have low interest rates, and approval is easy.
Banks and NBFCs differ a lot in loan approval parameters. Banks generally have strict lending standards. They generally prefer borrowers with a high CIBIL score of 700 and above. Due to this, loan applications from individuals with bad credit are often rejected.
On the other hand, NBFCs have a quite flexible approach. They don’t just rely on credit scores but also evaluate income, employment stability, and alternative data to approve loans. This is why it's easier to get a personal loan with bad credit through NBFC than through a traditional bank.
In this blog, you get complete information about a personal loan for bad credit. Many lenders now offer loans to bad-credit borrowers. However, these loans carry high interest and have stricter terms. The lenders go beyond credit score and evaluate various other parameters to approve the loan.
One should also think of improving one's credit score to get better loan offers. If traditional loans are tough to get, you can look for alternative options like P2P lending and credit union loans. These loans are easy to get.
Interest rates on bad credit personal loans in India range from 3% to 36% per annum, depending on the borrower’s loan amount, income, repayment tenure and lender policies.
A bad credit personal loan is a loan offered to borrowers who have a low credit score of 650 or less. These loans have higher interest rates and stricter terms.
Some of the common causes of a low credit score are missing out on EMI payments, high credit utilisation, multiple loan inquiries, and too many debts.
NBFCS, fintech lenders, P2P lending platforms and digital loan apps are some of the most convenient loan options for bad credit.
A credit score below 650 is considered a bad credit score for a personal loan in India.
Reputed lenders will declare all processing fees, late payment fees, and other costs upfront. You shall review the loan agreement carefully.
Most legitimate lenders in India will at least conduct some form of credit verification. But they also consider alternative data before approving the loan.
Secured loans are backed by an FD, investment or asset and generally have lower interest rates and higher approval chances for bad credit borrowers.
At lendingplate the complete loan process, starting from application initiation to disbursal of funds getting disbursed to ther bank account will be completed within 24 hours. In emergencies, it can be processed even faster.
The documents that need to be submitted are identity proof, address proof, income proof and bank statements.
The time for loan approval depends on lender policies and can vary among different lenders. It can take from one to seven days. Online lenders like lendingplate approve the loan on the same day.
Yes, there are alternative options for a personal loan for bad credit. These are secured credit cards, secured loans, P2P lending platforms, and credit union loans.
Yes, because it's not necessary to apply with a cosigner. But then you shall have a stable income and good repayment capacity.
Download our personal loan app to apply for a personal loan. Get up to 2Lakhs* as a personal loan. Download Now!
Sign into avail a personal loan up to ₹ 2,50,000
Unifinz Capital India Limited is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). lendingplate is the brand name under which the company conducts its lending operations and specialises in meeting customer’s instant financial needs.
RBI CMS
RBI Sachet
