Get a Personal Loan When You Have a Bad CIBIL Score

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A personal loan can help you take care of your financial needs even in emergencies. These days, many banks and financial institutions process personal loan applications even within a few hours at times. In order to get cash fast through a personal loan, you should meet all the eligibility criteria for the loan. When you apply for a personal loan, the most important factor that determines your eligibility for a personal loan is your CIBIL score.  

This is because most personal loans are unsecured loans so lenders want to be sure that you are not a high-risk candidate who may default on your repayments. The only way they can know if you have the repayment ability and discipline to pay your EMIs on future loans is by looking at your past history of repayment on loans and credit cards. This is the information that your credit score gives lenders. You might have heard that it is impossible to get a personal loan with a bad CIBIL score. But that is not entirely true.

Here are a few ways through which you can get a personal loan with a low CIBIL score:

1. Income Proof to Show You can Make EMI Payments

The first thing to do is to ensure that you provide up to date bank statements and salary slips. This will help you to prove that you have the required money to make EMI payments for the loan every month without any difficulty. If you recently got a salary hike, then you can show your increment letter as your salary slips may not reflect the higher salary. Also, if you have any other sources of income you should mention them and provide proof for the same when applying for the personal loan.

2. Work on Improving Your CIBIL Score over time

Although this will be a time taking process, it would surely be beneficial in the long run. You can consolidate your debt, pay off your credit card dues in installments, and pay your existing loan EMIs on time. It will take a few months for this to reflect in your credit report. However, it is well worth the wait as it will help you to be eligible for all kinds of credit in the future as well. Moreover, it will enhance your overall creditworthiness and help you get a higher amount of loans.

3. Apply with a Guarantor or a Co-applicant with a Good Credit Score

The banks and financial institutions are more likely to approve our personal loan application if you apply with a guarantor or a co-applicant who has a good credit score. The lender may not be confident granting the loan to you due to a bad credit score but when a guarantor or co-applicant is in the picture their credit risk decreases. Hence, they might be more likely to approve your loan application when it is co-signed by another co-applicant or a guarantor.

4. Ensure that You do not Apply for a Higher Amount as a Personal Loan

If you apply for a higher amount as a personal loan, the chances of the lender rejecting your application will also be higher due to the bad CIBIL score. However, if you apply for a lower amount the risk involved in granting the loan will also be lower significantly. Hence, the lender will be more comfortable in approving your loan application given that it will not be very difficult to pay off the lower loan amount.

5. Work on Improving Your overall Credit Utilization Rate

One of the best ways to prove to the lenders that you have the ability to pay off your loan is to improve your credit utilization rate. Credit utilization rate is measured by the total percentage of credit that you have utilized out of the overall amount available to you as credit. For example, you have three credit cards from banks A, B, and C. The below table provides a breakdown of your credit utilization ratio in this example.

  Credit Limit Credit Utilized
Credit Card A Rs 30,000 Rs 20,000
Credit Card B Rs 20,000 Rs 10,000
Credit Card C Rs 50,000 Rs 30,000
  Rs 100,000 (total limit) Rs 60,000 (total utilized)

Credit Utilization Rate (in percentage) = Rs 60,000 / Rs 100,000 = 60%

Hence, you can improve the credit utilization ratio when you pay off the amount due on your cards. This will ensure that you have more credit available to use. The lenders will see that as a sign that you are not always dependent on credit to sustain your lifestyle and will be more likely to pay off the amount you borrow.

6. Apply for a Personal Loan with a Non-Banking Financial Company (NBFC)

Traditional lenders such as the public sector and private banks have relatively stricter eligibility criteria and are less likely to provide personal loans to applicants with lower credit scores. Non-banking financial companies (NBFCs) on the other hand have relatively lenient lending policies and so their loan eligibility criteria will be easier to meet for people with low credit scores.  There are many such recognized companies that offer personal loans online. You can submit the required documents and apply for a personal loan online from such a lender.

7. Get a Secured Personal Loan By Offering a Collateral

If you feel that securing a personal loan through any of the methods mentioned above may not work for you, the best option for you will be to apply for a secured personal loan. When you apply for a secured personal loan, the lender will ask for collateral such as documents of property that you own, fixed deposit, gold jewelry, etc. The collateral is pledged against the applied loan amount and so the lender does not have to take the risk by approving your loan application. In case of default, they can recover the loan amount from the collateral and so they are more likely to approve your personal loan application. A bad CIBIL score will surely make it challenging for you to get a personal loan but it cannot stop you from doing so if you follow the methods mentioned above