Everyone wants a good education and sometimes to get a good education a person needs to borrow money as he/she will not be able to afford the education themselves. Presently, in India the process of taking an education loan is fairly straightforward and simple, most banks give you reasonable interest rates on education loans and the government encourages people to take loans for education purposes. But if you have a bad credit score this may not be the case.The average minimum credit score to be maintained to get a loan at a decent interest rate is approximately 750. Nearly 80% of loans that are approved by banks are for customers with scores above 750. A person with a very low credit score may be able to avail a loan from a bank, but at a relatively higher interest rate to someone who has a good credit score.
The Credit Information Bureau India Limited (CIBIL) is an organization the provides the scores and credit reports pertaining to individuals. The CIBIL score is a numerical representation of an individual’s creditworthiness. The CIBIL score is calculated by taking into consideration your credit history, the amount of bad credit you have held in the past and the amount of bad credit you presently hold. Your score can range anywhere between 1 – 999. If you have a low score obtaining a loan will become difficult. If you have a bad credit score and are looking to take a loan, we have listed a few options below:
- NBFCs: Non-banking Financial Companies (NBFCs) are slightly more flexible with an individual’s credits score. Some NBFCs have given loans to individuals with a credit score as low as 360 points. But the interest rates will be higher than normal.
- Collateral: If you have any form of valid collateral it can be used to lower the interest rates on loans. Life insurance policies usually do not fetch much of a discount as the cover is usually not big enough to get a sizeable loan. Some banks do consider loan protector policies.
- Gold Loans/Loans against property: In case you have a low credit score, a loan against gold or property might fetch you a better chance at getting your loan approved and might help bring the interest rates down.
- P2P: Peer-to-peer lending websites are also a good option in case you have a low credit score. P2P businesses provide individuals with loan for up to Rs.5 lakh for tenures up to 36 months. The interest rate on these loans ranges between 12% to 24% and they are collateral free.
Bad Credit Education Loan General Tips
- Avoid approaching large banks if your score is below 650. Each enquiry for a loan affects your CIBIL score. Lenders pull your CIBIL data each time you enquire about a loan and a number of these enquiries reflect badly on your CIBIL report.
- Try approaching NBFCs as they target customers that most other financial institution will not entertain.
- If you have a low CIBIL score but have a genuine reason for the score being so low, state the reason to your lender. Lenders sometimes will lower your interest rate if they feel your reason was genuine enough.
- Make sure all your credentials are in order when applying for a loan.
- Banks prefer giving loans to individuals who have stayed in their current address for at least 2 years.
- Your chances of getting a loan at a good interest rate will be higher if your previous default is at least 24 months old.
- Apply for a secured loan. Most banks want you to have an existing relationship with them to obtain an unsecured loan.