Find out various strategies for securing a personal loan with a low CIBIL score.
Many individuals in India rely on personal loans to address urgent financial requirements. Lenders typically place no restrictions on the usage of the loan amount. Applicants need to meet the lender’s eligibility criteria, and the credit score is vital in the approval process.
A low CIBIL score makes loan approval difficult, but alternative options and flexible lenders may still help you secure a loan.
A credit score is a three-digit number (usually ranging from 300 to 900) that reflects your credit habits. It demonstrates your ability to manage loans, credit cards, and repayment capabilities. Scores above 700 indicate good credit behaviour; lower scores reflect financial struggle.
Securing a personal loan becomes challenging when your credit score is lower than 500. A potential lender will view you as someone with poor debt management. This, in turn, causes hesitation in providing funds.
Even when a lender agrees to offer a loan, you may be offered high interest rates or be required to provide collateral. You may also only find options through small or private lenders who impose strict penalties for missed EMIs.
Apply with NBFCs or offer collateral when the credit score is low
Pay bills on time and reduce credit utilisation to improve your score
Add a co-applicant to increase the chances of approval
Prepare for higher interest rates and processing fees
Start with a lower loan amount to build creditworthiness
A CIBIL score represents your creditworthiness based on your repayment history. Lenders use it to evaluate the risk involved in lending. Below is a breakdown of score ranges and their meaning:
Score Range |
Meaning |
Impact |
---|---|---|
NA/NH |
No CIBIL score or credit history |
You need to start using a credit product, such as a card card or a secured loan, to build a score |
300–599 |
Frequent missed EMIs and outstanding dues |
Lenders view you as high-risk and may reject your application |
500–649 |
Regular delayed payments |
Lenders may reject your application or apply high interest rates |
650–749 |
Moderate to good credit practices |
Loan approval is possible, but interest rates may be higher |
750–900 |
Responsible credit usage |
You receive faster approvals and better loan terms |
Even though it is challenging, with some extra effort, you can secure a personal loan with a low CIBIL score:
Traditional banks have strict eligibility criteria that are often difficult to meet. In such cases, consider lenders with more flexible terms. These include:
Non-banking Financial Companies (NBFCs)
Credit unions
Peer-to-peer platforms
Some online financial institutions may offer quick loan approvals even to individuals with low credit scores. However, such loans usually come with higher interest rates and stricter terms.
You can still get a personal loan with a low CIBIL score through a strategic approach. Consider the following example:
You may require ₹2 Lakhs but face rejection from the lender. In such cases, consider applying for a smaller amount, such as ₹1 Lakh.
A lower loan amount can improve the lender’s confidence in your ability to repay. You can then arrange the remaining funds through alternate sources.
When unsecured loans are not accessible due to a low credit score, secured loans become a suitable alternative. You need to pledge an asset as collateral, which lowers the risk for the lender. This generally leads to easier approval. Ensure that a proper repayment plan is in place to protect the pledged asset.
A joint application with someone who has a strong credit score can improve your chances of loan approval. Lenders review both financial profiles and may approve the loan if the combined repayment ability appears reliable.
A stronger credit profile increases approval chances and improves loan terms. The following steps will help improve your financial standing:
Lower credit utilisation
Diversify credit mix
Limit credit applications
Update loan settlements
A bank where you maintain a salary, savings, or deposit account may review your long-standing relationship. This can influence their decision to approve your loan application.
When you apply for a personal loan, your potential lender wants to ensure that you have the capacity to repay it. Your credit score reveals your financial behaviour and sense of responsibility. A low CIBIL score may lead to the following challenges:
A low CIBIL score often leads to a loan rejection. Lenders rely heavily on your credit score to assess your repayment behaviour. A score that indicates missed payments or defaults may cause lenders to reject your application without further verification.
Lenders apply higher interest rates to borrowers with poor credit scores. They offset the increased risk by raising the EMI amount. This results in a higher total repayment burden for the borrower.
Lenders approve smaller loan amounts when the credit score is low. They lack confidence in your ability to repay larger sums. You may have to borrow the remaining amount from other sources such as friends, family, or another lender.
Adding a co-applicant to your loan can increase the chances of approval. However, it also carries risks for both parties, such as:
Missed EMIs can hurt both credit scores
Reduces the co-applicant’s loan eligibility
This may lead to legal issues
Co-applicant may not own the asset
Lenders increase documentation requirements when assessing applicants with low credit scores. They may request additional proof of:
Income
Employment stability
Liabilities
They also conduct more detailed background verification. These processes can cause delays or result in rejection when any discrepancy is found.
Lenders may approve your loan but only for a shorter tenure. This allows them to recover their funds quickly. However, it increases your EMI amount. A shorter tenure also reduces your flexibility in managing repayments.
Low-credit-score personal finance options are available, but they come with high fees in case of default. Lenders impose these charges to ensure you follow the terms strictly.
A low credit score reduces the number of lenders willing to offer a loan. Most banks may reject your application; therefore, you need to consider approaching NBFCs or private lenders.
Lenders rarely allow flexibility when your credit score is low. You lose the opportunity to negotiate better interest rates, longer tenures, or repayment features such as part-prepayment. You have to accept standard and non-customisable terms.
Check your credit report before applying for loans. In case your score is low, take steps to improve it:
Error-free Credit Report: Fix any errors to keep your report accurate.
Credit Utilisation: Keep utilisation below 30%. Do not spend over half your monthly income.
Get Different Kinds of Loans: Too many unsecured loans can negatively impact your credit score. Consider adding a secured loan, such as a gold loan, to create a better balance in your credit profile.
A CIBIL score directly affects your chances of loan approval. Lenders use it to assess your creditworthiness, and most require a minimum score to consider your application.
It is possible but difficult. Some lenders offer loans based on income stability, employment status, and existing obligations instead of a credit score.
Any individual can apply, but lenders usually require a stable income. Some may also ask for collateral or a co-signer to lower their risk.