Personal Loan for Low Cibil Score

When you approach lenders for a personal loan, the first thing they usually do is check your credit score. Your credit score is a score of your credit history, the amount of credit availed by you, your repayment abilities, etc. Since personal loans are collateral-free or unsecured loans, lenders will evaluate if lending to you would be a risky proposition and a credit score will help them determine that.

While it is a general notion that people with low credit scores cannot get a personal loan, the truth is that there are many lenders who offer personal loans for people with low credit scores. Some of them have been listed below:

What is a CIBIL Score?

The way banks and other financial institutions can know your creditworthiness is through your CIBIL (Credit Information Bureau Limited) score. It is a number that is associated with you and tells the bank how responsible you are with your loans and credit cards. The CIBIL score is one of the prime parameters used to determine the approval of a loan. The CIBIL score was India’s first-ever credit rating system and is recognised by all the banks as an authority on an individual's credit rating.

The table mentioned below gives a better idea of a good and a bad CIBIL score for a personal loan:

How does CIBIL Score work?

How the CIBIL score system works is similar to the credit score systems found in many countries. You are assigned a score, a number, between 300 and 900. The number that you get is a result of the information that the banks forward to CIBIL. This information is a collection of your repayments of Personal Loans, home loans, vehicle loans and credit cards. If all your payments are made on time, then you can hope to have a good score.

If you skip payments or fail to pay the credit back in time, it could lower your credit rating which would, over time, would make it difficult for you to get approved for a loan. CIBIL is also going to include utility bill payments which means that your score could improve or deteriorate depending on when you pay your phone, electricity or water bills.

Ways to Get a Personal Loan with a Low CIBIL Score

• Low Debt-to-income Ratio: By keeping your debt-to-income ratio low, you will be able to improve your chances of getting approved for a loan.
• Stable Income: Demonstrate a consistent and reliable source of income to enhance your eligibility.
• Co-applicant: Consider applying with a co-applicant who has a better credit score to increase your likelihood of approval.
• Additional Documentation: Be prepared to provide extra documentation to strengthen your loan application.

What factors lower CIBIL Score?

Since CBIL scores are supposed to be an indicator of your financial habits, the score changes based on how you handle your loans and credit cards. These are some of the factors that can have a negative effect on your CIBIL score.

• Personal loans - Since personal loans are unsecured loans, taking too many personal loans can cause your credit score to fall.
• Missing loan instalments - If you miss an instalment on your loan then it may be viewed as poor financial planning which means that your credit rating will suffer making it difficult for you to secure loans in the future.
• Coming too close to the limit on credit cards - If you are too close to the limit of your credit cards too often, it too points at constant debt and an inability to manage money wisely leading to a reduction of your CIBIL score.
• Not paying credit cards back on time - Just like the EMI for your loans, if you fail to pay your credit card dues on time, they too can have a negative effect on your credit history.
• Not paying credit cards in full - You might think that paying just the minimum due on the card or slightly more than that is enough to keep things under control but it's not. While the banks may not be overly concerned that you have an outstanding balance, CBIL on the other hand takes it as a negative sign. For CIBIL, outstanding balance are not a good thing and tend to lower your scores.
• Not having any credit at all - It may sound like a good place to be in if you don't have any loans or credit cards at all when in fact it is not. This is so because not having a credit history means that your credit score is 0 by default which means that if you were to apply for a loan or a credit card, the chances of it getting reject are higher.
• Too many rejected applications for loans/credit cards - If you apply for a loan or a credit card and your application is rejected, you tend to apply with another bank, and another and so on. Such practices reduce your score for two reasons. The first is that CIBIL takes constant rejects to be a bad sign and secondly because every time a bank requests CIBIL for your credit information, your credit scores come down.
• Settling credit cards - If you have settled credit cards, that is, if you have negotiated with the bank and closed a credit card after paying an amount lesser than what was due on the card, then your credit history will receive a red flag that could cause trouble later.

How CIBIL scores affect eligibility for loans?

While banks may not tell you what CIBIL score makes you a perfect candidate for a personal loan, they do say that your credit score will play a part in the approval of your application for a loan. If your score is below a certain number, then chances are that you may not be approved for a loan.

Even if you are approved, the interest rates offered to you may be higher than those offered to someone with a good score. While most banks in India may be vary of providing loans if credit scores are low, there are private finance companies that may offer personal loans for low CIBIL scores.

Ways to Improve Your CIBIL Score

Obtaining a personal loan with a low CIBIL score can be difficult, but with the right strategy, it is achievable. Improving your CIBIL score not only helps you obtain a personal loan but also ensures better terms and conditions. Mentioned below are some ways to boost your creditworthiness:

• Checking Your Credit Report: Obtain a copy of your credit report from the credit bureau and review it for any errors or discrepancies.
• Making Timely Payments: Pay your existing debts, such as EMIs, credit card dues, and bills, on time. Consistent, on-time payments significantly influence your credit score.
• Diversifying Your Credit: Maintain a healthy mix of secured and unsecured credit. A diverse credit portfolio, including loans, credit cards, and other credit types, can positively impact your score.
• Reducing Credit Utilisation: Keep the balance of your credit card below 30% of your credit limit. A very high credit utilisation can negatively impact your credit score.
• Credit Settlements: Ensure that any settled loans or credit card dues are accurately updated in your credit report.
• Keeping Old Accounts Active: Maintaining old credit accounts can contribute positively to your credit history.
• Avoiding Frequent Credit Applications: Limiting the number of credit applications can improve your credit scores. Making frequent credit inquiries indicates financial stress and can lower your credit score.
• Regularly Monitoring: Continuously monitor your credit score and promptly address any discrepancies to maintain an accurate and positive credit report.

Improving your CIBIL score for a personal loan is a steady process that demands persistence and patience. You can significantly boost your creditworthiness and improve your chances of securing a personal loan with favourable terms by following these tips, even if your CIBIL score is low.

Securing a personal loan with a low CIBIL score can present challenges, but it is not impossible. By diligently following the strategies outlined above, you can improve your CIBIL score and boost your chances of loan approval. Striving to improve your CIBIL score is beneficial not only for obtaining a loan with us but for any credit-related transactions in general. While this process may take time, the long-term benefits will be well worth the effort.

FAQs on Personal Loan for Low CIBIL Score

1. What is the minimum CIBIL score I need to avail of a personal loan?

   If you have a score between 600 and 750, you can approach banks or financial institutions for a personal loan. However, since the score is neither good nor bad, lenders will be cautious and may carry out additional credit checks before sanctioning a loan to you. They may also charge you a higher rate of interest.

2. How do I check my CIBIL score?

   You can check your CIBIL or credit score on the BankBazaar website under the Free Credit Score section on the homepage. You can also check your score on the official website of CIBIL at www.cibil.com. Once you visit the site, you will be asked to enter your personal details such as name, phone number, email ID, etc., after which your score will be displayed to you.

3. I have never taken a loan or a credit card. Will, I still have a CIBIL score?

   If you have neither borrowed from any bank or financial institution nor owned a credit card, you will have no credit history which will be indicated by a –1 score. Some lenders may lend to you as a first-time borrower because they will not be able to gauge the risk.

4. What is a good CIBIL score?

   A CIBIL score between 750 to 900 is considered a good score and most lenders will approve your request for a personal loan. Lenders will also be happy to lend to you at a lower interest rate, and may even offer discounts on pre-closure charges and processing fees.

5. What benefits will I get if I have a good CIBIL score?

   Having a good CIBIL score will give lenders the confidence to sanction your loan request. If you have a good credit score, you can negotiate with the lenders to give you a good deal on interest rates, processing fees, etc. You may even get pre-approved offers which will let you avail a personal loan instantly with minimal documentation.