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Personal Loans for People with a Low or Bad CIBIL Score

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When you apply for a personal loan, the first thing most lenders do is run your credit report. Your credit score is based on your credit history, the amount of credit you’ve taken out, and your ability to repay debts, among other factors. Because personal loans are unsecured loans with no collateral, lenders will use your credit score to determine whether lending to you is a dangerous venture.

While it is a common misconception that persons with poor credit cannot obtain a personal loan, the truth is that many lenders provide personal loans to people with poor credit. 

What is a CIBIL Score, and how do you get one?

Your CIBIL (Credit Information Bureau Limited) score is how banks and other financial institutions determine your creditworthiness. It’s a personal identification number that notifies the bank how responsible you are with your loans and credit cards. The CIBIL score is one of the most important factors in determining whether or not a loan will be approved. The CIBIL score was India’s first credit rating system, and it is recognized by all banks as a reliable source of information about a person’s credit rating.

The CIBIL score system works in a similar way to credit score systems in many other nations. A number between 300 and 900 is issued to you as a score. The number you receive is based on information provided by the banks to CIBIL. This data is a compilation of your personal loan, house loan, auto loan, and credit card repayments. If you make all of your payments on time, you should expect to have an excellent credit score.

If you miss payments or do not repay your credit card on time, your credit rating will suffer, making it more difficult for you to obtain credit in the future. Utility bill payments will be included in CIBIL, which means that depending on when you pay your phone, power, or water bills, your score may improve or decrease.

The table below will give a better idea of a good and a bad credit score.

Credit score Is it good or bad? Chances of approval
Less than 600 Very bad Extremely low
600-649 Bad Low
650-699 Satisfactory Possible
700-749 Good High
Over 750 Very good Extremely high

What factors contribute to a low CIBIL score?

Because CBIL ratings are meant to be a reflection of your financial habits, they fluctuate depending on how you manage your loans and credit cards. 

Read more: Best credit cards in india 2021

These are some of the things that can affect your CIBIL score negatively.

Personal loans  Because personal loans are unsecured, taking out too many of them will hurt your credit score.

Missing loan payments If you miss a loan payment, it may be considered as poor financial planning, lowering your credit score, and making it more difficult to obtain loans in the future.

Coming too near to your credit card limit Coming too close to your credit card limit too often indicates chronic debt and an inability to manage money effectively, resulting in a drop in your CIBIL score.

Failure to pay credit card dues on time Just like not paying your loan EMIs on time, not paying your credit card dues on time can have a bad impact on your credit history.

Failure to pay credit cards in full –

You may believe that paying the minimum due on your credit card or a little more than that is sufficient to keep things under control, but this is not the case. While your bank may be unconcerned about your outstanding balance, CBIL sees it as a red flag. Outstanding balance is not a good thing for CIBIL, and it tends to lower your results.

Not having any credit 

It may appear that not having any loans or credit cards is a favorable situation to be in, but it is not. Because you don’t have a credit history, your credit score is 0 by default, which indicates that if you ask for a loan or a credit card, your chances of being rejected are higher.

Too many loan/credit card applications are rejected  

If you apply for a loan or a credit card and it is denied, you are likely to apply with another bank, and then another, and so on. For two reasons, such behavior lowers your score. The first is that CIBIL considers continuous rejections to be a poor indicator, and the second is that your credit scores drop every time a bank asks for your credit information from CIBIL.

Settlement of credit cards

If you have settled credit cards, that is, if you have negotiated with the bank and canceled a credit card after paying an amount less than what was due on the card, your credit history will receive a red flag that could cause problems in the future.

FICO uses five pieces of information to determine your credit score:

  • 35 percent payment history
  • 30 percent of the total amount owing
  • 15 percent of people have a long credit history.
  • 10 percent new credit
  • 10 percent credit mix

Things to consider before applying for a Low Credit Personal Loan

Before you decide to take out a bad credit loan, keep the following considerations in mind:

  • Conduct thorough research and compare the benefits of various lenders. Select a lender with a lower interest rate.
  • Check your eligibility before applying for a negative credit loan to avoid having your application denied, which could further harm your credit score.
  • Examine the terms and circumstances of bad credit loans carefully so that there are no unpleasant surprises later.
  • Before you apply for a negative credit loan, consider your repayment capacity.

How do I acquire a personal loan with bad credit?

Obtaining a personal loan with negative credit is not hard, but it does necessitate thorough research to get the cheapest loan. If you don’t have good credit, follow these procedures to secure a personal loan.

Examine your credit report:

Request a free credit report from com to learn more about your credit situation. Each credit reporting agency is required to provide you with one free credit report per year, though you can get weekly reports until April 2022.

Make sure you’ll be able to pay back the loan:

Examine your household budget to see if you can afford an extra monthly loan payment.

Compare bad-credit personal loans:

 If you already have a relationship with a bank or credit union and your accounts are in good standing, the bank or credit union may be able to help you with a personal loan. You may also look into personal loans for people with bad credit on the internet, but make sure to read the tiny print and check out independent evaluations of the lender first.

Take advantage of pre qualification: 

Before you apply for a loan, many internet lenders will let you prequalify, which means you can see if you’ll be approved without having to complete a hard credit check. This is an excellent strategy to look for a bad credit loan without negatively affecting your credit score.

Consider secured loans: 

Some lenders provide secured personal loans, which are generally easier to obtain if your credit is less than ideal. These loans require collateral, such as your home or car, but they usually have lower APRs.

If necessary, add a co-signer:

Co-signers take on a portion of the loan’s liability and may be obliged to repay it if they fall behind on payments. Adding a co-signer with good credit to your application may help you qualify and result in reduced interest rates.

Gather financial paperwork: 

You’ll most likely be required to present financial documents such as pay stubs, tax documents, and employment details when applying for a loan. You can speed up the loan application process by compiling all of these documents ahead of time.

Prepare for a hard credit check: 

While many lenders will prequalify you without running a credit check, the actual application will trigger a credit inquiry. A hard credit check may temporarily harm your credit, but after you start making payments on the loan, you should be able to restore the points you lost.

How can you improve your chances of getting a bad credit loan?

Demonstrate your ability to pay back the EMIs –

Lenders may issue you a loan despite your poor credit score if your earnings have increased. As a result, if you can show the lender that your earnings have improved and that you can afford to pay the EMIs, you have a good chance of getting a loan.

Provide collateral – 

Providing collateral increases your chances of obtaining a loan by lowering the risk of financing to you. Lenders are willing to provide you a loan because they know that if you default, they can sell or auction the collateral to recoup the loan balance.

Apply with a co-applicant –

When you apply for a loan with a creditworthy co-applicant, your chances of getting a loan improve. Applying with a co-applicant is a fantastic idea if you have a low credit score and want to get a bad credit loan.

Request a smaller personal loan amount.

If you have a bad credit score, your prospects of getting a loan are little to none. Personal loans for people with negative credit are available if you ask for a smaller loan amount. Because the lender will have to give a smaller amount, the danger of a borrower default will be reduced even further.

If there are any errors on your credit report, correct them.

Errors and inconsistencies on a credit report can frequently result in a low credit score, limiting borrowing options. Once a year, check your free credit report online to see if there are any inaccuracies or mistakes you need to report.

Bad Credit Loan Alternatives

There are only a few options to examine before taking out a bad credit loan. These are the possibilities:

  • Speak with your present financial institution to see if they can give you a loan that is tailored to your needs. Instead of turning to a new financial provider for a loan, your present financial provider may be able to assist you in this area.
  • Community-owned credit unions can provide a viable alternative to banks for persons facing financial difficulties. To qualify for the loan, you must be a member of the credit union. These organizations are helpful, and their primary goal is to help their members.
  • Credit cards are another alternative for folks who have a poor credit history. There are credit cards specifically designed for persons with weak credit. They may, however, have smaller credit limits and higher interest rates. Also, keep in mind that a failed application will result in further damage to your credit card.
  • Those who cannot afford their rent can also apply for interest-free budgeting loans from the government. The loan will only be given to people who have a pressing need.
  • Make the most of your personal savings for as long as possible. It is preferable to have used your savings rather than paying high-interest rates on loans.
  • Seek a loan from your relatives and friends. You can work out a win-win situation with them, and they will be far more understanding than any financial institution. You can come to an agreement on a reasonable interest rate.