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When you apply for a personal loan, whether with a bank or an NBFC, they evaluate your application based on certain eligibility criteria. Your credit score or CIBIL score, among many others, is one of the most important criteria that lenders use to determine your eligibility for a personal loan. If you have a good CIBIL score (750 or above), your loan application will most likely be approved. On the other hand, if your CIBIL score is low (say less than 650), odds are that your application will be rejected. In this article, we will be discussing some of the ways you can get a personal loan despite a low CIBIL score.

Who is Considered to be a CIBIL Defaulter

CIBIL Defaulter is not a legal term nor is it mentioned in your CIBIL report. Borrowers with a very low CIBIL score (less than 650) are often referred to as CIBIL defaulters because they are quite likely to have defaulted on their credit obligations repeatedly in the past.

Ways to Avail Personal Loans for CIBIL Defaulters

If you have a history of debt defaults and, consequently, have a low CIBIL score, chances are most lenders will reject your personal loan application. This is because lending money to someone with a bad credit history is too risky a proposition for any financial institution. However, there still are a few ways to avail a personal loan despite a low CIBIL score. Below, we have listed some ways to avail a personal loan with a very low CIBIL score online:

Apply with a Guarantor

If you are economically stable but have a low CIBIL score due to previous defaults, you can still have your personal loan application approved with a guarantor onboard. Having a guarantor mitigates the financial risk the lender would be taking by lending you money since the guarantor would pay up in case you default. A co-guarantor increases the chances of your application being approved. However, it is crucial that your guarantor has an excellent CIBIL score. You should also bear in mind that in case of a default on your part, your guarantor’s CIBIL score will also take a hit.

Have a Stable Source of Income

You can furnish the necessary documents to prove to the lender that you make enough money to keep up with the EMI payments. Additionally, you must ensure that you have a good fixed obligations to income ratio (FOIR), which is essentially the part of your income that you spend paying your credit obligations. If you are shelling out under 40% of your income to repay your monthly debt obligations, you will stand a better chance of getting a personal loan even though you are a CIBIL defaulter.

Borrow at Higher Interest Rates

Another way to obtain a personal loan for CIBIL defaulters is to get a personal loan at higher interest rates. While this may hike your financial outgo, it can increase the chances of loan approval.

Opt for Loans with Collateral

Personal loans are unsecured loans and are granted without any collateral. However, if you have a very low CIBIL score, you may ask the lender to offer you the loan against a collateral. Ensure timely repayment of such secured loans to avoid seizure of the collateral.

Opt for Online Lenders

You can also opt for a personal loan from online lenders as they are a tad more lenient while dealing with personal loan applications that have low credit scores. If you are applying for a loan with an online lender, you must ensure that you can demonstrate that you can repay your loan without any hassles.

Improve Your CIBIL Score

This one is quite obvious. If you have a history of debt defaults, you must prove your creditworthiness to future lenders. Most lenders consider the CIBIL score as the most reliable method for evaluating an individual’s creditworthiness. Therefore, if you want to avail a personal loan at low interest rates and favourable terms, the best way is to improve your CIBIL score and then apply.

How to Improve and Maintain a High Credit Score

As you might be already aware, your CIBIL score is a three-digit number ranging from 300 to 900 that indicates your creditworthiness. The higher the CIBIL score, the higher are the chances of loan approval. Moreover, a good CIBIL score (over 750) also allows you to get loan offers with lower interest rates and favourable terms. Here are some of the ways to improve your CIBIL score:

  • Timely Repayment of Obligations: Financial punctuality is the single-most important factor that affects your CIBIL score. You must ensure that you always pay your credit card dues and loan EMIs on time without fail.

  • Low Credit Utilisation: You should avoid overspending with your credit card. Ideally, your monthly expenditure on your credit card should not exceed 30% of the credit limit.

  • Good Mix of Secured/Unsecured Loans: You should have a good mix of both secured as well as unsecured loans in your credit profile. It indicates that you have the experience of handling both types of loans.

  • Review Your Credit Report Regularly: You must review your credit report regularly, every month if possible. In case you notice any discrepancy or error in your credit report, immediately notify the concerned credit bureau and get it rectified.

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