With a low CIBIL score, a personal loan might seem a distant dream. A bad credit score indicates higher risks for the lenders, who usually reject loans based on it. Nevertheless, there are possibilities of taking a personal loan even with low CIBIL score, using the correct strategy. This blog will explore the best personal loan options for people with low CIBIL scores in India, tips to improve your chances of approval, and everything you need to know about the risks and benefits of borrowing under such circumstances.
What is a Low CIBIL Score?
CIBIL is an abbreviation for Credit Information Bureau (India) Limited, which is the leading credit bureau in India. CIBIL has a scale of credit score, which runs from 300 to 900. More the score, higher is the creditworthiness of the customer. If the score is 750 and above, one gets loans and credits easily.
Criteria for Low CIBIL Score
Low Score (300-600): A score below 600 is considered poor, which typically limits your ability to get approved for loans from most traditional banks.
Average Score (600-750): While this is still on the lower side, some financial institutions may offer loans but with higher interest rates or stricter terms.
Common Reasons for Low CIBIL Score
Missed or Late Payments: Any delay or defaults in loans or credit card payments can significantly damage the score.
High Credit Utilization: Using a large percentage of your credit limits regularly can decrease the score.
Multiple Credit Inquiries: Applying for several loans or credit cards within a short time frame can damage the score since it shows desperation and lack of financial stability.
Default on Loans or Credit Cards: Lenders view defaulted loans and credit cards to have bad credit. That means one’s score comes down by defaulting loan payments or non-payment of credit card bills on time.
Factors Lenders Consider Apart from CIBIL Scores
1. Employment Stability
Lenders look for consistent and reliable income sources. If you have a stable job with a good salary or show steady business income, this could offset a low CIBIL score. Lenders want to ensure you can repay the loan, and a consistent income stream helps assure them.
2. Debt-to-Income Ratio (DTI)
This ratio measures your ability to manage monthly payments to existing debts compared to your income. A lower DTI ratio is favorable as it shows you have enough income to manage new debt payments comfortably.
3. Collateral or Guarantor
If you’re offering collateral, like a car or property, or have a co-signer (a guarantor), the lender may be more willing to approve the loan. This reduces the risk for the lender, even with a low credit score. Secured loans often have more favorable terms.
4. Existing Relationship with Lender
Having a good relationship with a bank or financial institution, like on-time repayments of previous loans or credit cards, will surely help in getting the loan approved even with a low score.
Best Personal Loan Options for Low CIBIL Score in India
1. Non-Banking Financial Companies (NBFCs)
The primary difference between NBFCs and banks is that they are private in nature, but they are flexible when it comes to lending criteria. CIBIL scores are not their point of focus; instead, they focus on your income and repayment history.
Some of the well-known NBFCs include:
Bajaj Finserv: Bajaj Finserv avails personal loans with least paperwork, quick disbursements and lenient conditions for eligibility. Chances are they will have less problems with accepting applicants as well even if the applicant happens to have a poor credit score.
Tata Capital: Tata Capital provides personal loans to salaried individuals even though their credit score may not be at the par best. So they gain, with swift sanction processes with easy documentations.
Fullerton India: Fullerton India happens to be yet another safe and sound NBFC where salaried men and women with a sufficient income and well-established source of income will be made eligible for making use of all facilities regarding obtaining loans in its facility.
2. Peer-to-Peer or P2P Lending Platforms
P2P lending platforms allow direct borrowing from lenders (peer-to-peer), bypassing traditional financial institutions. These platforms tend to have fewer restrictions and are more flexible with credit scores.
Trusted P2P Lending Platforms:
Faircent: Faircent is one of the leading P2P lending platforms in India. They offer unsecured personal loans with lower CIBIL score requirements, relying more on your repayment capacity than your credit score.
LenDenClub: The loan products given at LenDenClub is especially designed for the ones with low CIBIL scores. This analyzes your risk through data-driven algorithms rather than basing anything on your credit history.
RupeeCircle: Another good P2P website, RupeeCircle connects the borrowers to lenders and provides loans to individuals with low CIBIL scores. It offers the terms of repayment based on the income of the applicant along with his repaying capability.
3. Fintech Lenders and Apps
Fintech companies use technology to give small-ticket loans to low CIBIL score individuals. The lenders give quick loans with minimal paperwork.
Popular Fintech Lenders:
KreditBee: KreditBee offers short-term personal loans to people with a low credit score. More importance is given to income and job stability, offering instant disbursals.
MoneyTap: MoneyTap offers a credit line to borrow as much as you want according to the requirement. MoneyTap loan is especially suitable for individuals with low CIBIL scores, but also gives flexible repayment modes.
CASHe: CASHe is a fintech company that offers personal loans requiring minimal documentation. Based on an SLQ model where their algorithm takes into account one’s digital footprint, including your social media activity along with your credit score, and generates a unique number or quotients.
4. Small Finance Banks
Small finance banks are initiated with the main objective of providing financial facilities to deprived sections, that is, people who suffer from low CIBIL scores. These small finance banks also offer personal loans at very reasonable rates even to people with bad credit histories.
Small Finance Banks Examples
Ujjivan Small Finance Bank: This bank primarily deals in personal loans, which the bank gives at competitive interest rates to individuals with low CIBIL scores. This bank deals with financial inclusion and gives flexible loan products.
Jana Small Finance Bank: Jana Small Finance Bank also offers personal loans along with the eligibility criteria, even to those who have low CIBIL scores.
Risks and Things to Avoid
High-Interest Rates: Most lenders may grant personal loans to people with low CIBIL scores, but they charge relatively high interest rates. Always account for the total cost of repayment.
Predatory Lenders: Be wary of online lenders that promise loans without paperwork or guaranteed approval. These are usually scams. Stick to verifiable lenders and read reviews before proceeding.
Defaulting on Payments: Missing payments on a low CIBIL score loan will further damage your credit and may lead to a further financial crisis. Only apply if you are assured you can repay comfortably.
How to Enhance Your CIBIL Score for Better Loan Terms
1. Clear Existing Debts in Time: Fix reminders for EMIs and credit card payments.
2. Credit Utilization Ratio Keep your credit card usage less than 30% of the limit.
3. Check Your Credit Report Monitoring regularly and removing the wrong entries or reporting errors.
4. Avoid new credit Seek less, that’s going on with new loan or new credit card applications for a long time.
5. Debt Consolidation Consider consolidating multiple loans at one point to reduce repayment burden at any moment.
A low CIBIL score doesn’t mean the end for your financial opportunities. Under such circumstances, you are free to opt for personal loans offered by NBFCs, P2P lending sites, fintech companies and small finance banks. After all, it is pertinent to borrow responsibly and improve that credit score.
You need to choose the right creditor and repay in time if you want to regain or establish your financial credibility when fulfilling your short-term requirements.