Know how to get a personal loan if you have a history of credit defaults. Check out ways to get loan approval and improve your credit score.
Credit Information Bureau (India) Limited (CIBIL) is one of the four credit bureaus in India that track your credit history and financial behaviour. Your CIBIL score, ranging from 300 to 900, reflects your creditworthiness. The closer your score is to 900, the better are your chances of getting a personal loan with favourable terms.
Since lenders use your credit score to assess risk, a low score or a history of defaults can make it harder to get a loan. But that doesn’t mean it’s impossible. Even if you’re a CIBIL defaulter, there are ways to secure a personal loan and rebuild your credit score to improve your financial standing.
You are considered a credit defaulter if you have taken a loan but are unable to repay it on time. However, CIBIL does not maintain any official list of defaulters. Instead, it tracks your credit history and assigns you a CIBIL score, which lenders use to assess your creditworthiness. A low score signals higher risk, making it harder to get a loan. While being a defaulter affects your chances of approval, it does not make it impossible to secure a personal loan.
Lenders may be cautious about approving loans for credit defaulters, but you still have options. Here are some ways to improve your chances of getting a personal loan despite a low credit score.
If you apply with a co-signer or guarantor who has a strong credit score, your chances of approval increase significantly. Lenders see this as an added assurance that the loan will be repaid, reducing the risk of rejection.
Since lenders consider a low credit score risky, they may approve your loan but at higher interest rates. If you urgently need funds and can manage the repayment, this can be an option to consider.
Offering collateral (such as property, fixed deposits, or gold) can improve your chances of getting a loan. Lenders are more likely to approve secured loans since they have an asset to recover their money if you default. However, if you fail to repay, the lender may seize the asset, so you should proceed with caution.
If possible, work on improving your CIBIL score before applying for a loan. Repay outstanding debts, clear overdue payments, and avoid multiple loan applications. A better score will increase your chances of approval and help you secure better loan terms.
If banks reject your application, consider peer-to-peer lending, online lenders, or Non-Banking Financial Companies (NBFCs). These lenders often have more flexible criteria and may offer loans to individuals with low credit scores. However, be sure to check their terms, interest rates, and credibility before proceeding.
If you have defaulted on a loan or credit card payment, you may face several challenges when applying for a new loan. Lenders consider past defaults as a sign of financial risk, making it harder for you to access credit on favourable terms.
Here are some key difficulties you may encounter:
Defaulting on a loan can result in late fees, penalties, and higher interest rates. This increases your financial burden and makes repayment even more difficult.
Your credit score drops significantly when you default on a loan. Lenders report late payments to credit bureaus like CIBIL after 30, 60, or 90 days of non-payment. The longer the delay, the greater the impact on your credit score. A low score makes it harder to get approval for future loans or credit cards.
A poor credit history makes it difficult to qualify for new loans or credit cards. Lenders consider defaulters as high-risk borrowers, making approvals more challenging. Even if you do get a loan, the terms may not be in your favour.
If lenders agree to provide you with a loan despite a low credit score, they may charge higher interest rates to compensate for the risk.
Lenders may take legal action if you fail to repay a loan. This can include wage garnishment (where a portion of your salary is deducted for repayment) or seizure of assets like property.
Many landlords conduct credit checks before renting out properties. If your credit report shows a history of missed payments or defaults, landlords may hesitate to offer you a rental agreement.
A good credit score can help you secure loans at lower interest rates, improve your credit card offers, and even impact your ability to rent a home.
Here are some key ways to enhance and maintain a strong credit score:
Pay Your Bills on Time
Timely payment of loan EMIs, credit card bills, and other dues is crucial for improving your credit score. Even a 30-day delay in payment can negatively impact your score. Consistently paying on time builds trust with lenders and strengthens your credit history.
Clear Outstanding Debts
If you have unpaid loans or overdue accounts, addressing them should be a priority. Lenders view outstanding debts negatively, making it harder to get new credit. Taking proactive steps to clear debts improves your creditworthiness and increases your chances of loan approval.
Reduce Your Credit Card Balances
High credit utilisation can hurt your credit score. Ideally, you should keep your credit usage below 30% of your total available limit.
For example, if your total credit limit is ₹50,000, keeping your outstanding balance below ₹15,000 is ideal. A balance of ₹30,000 or more can lower your score as it signals over-reliance on credit.
Being a CIBIL defaulter can make it challenging to secure loans, but it is not the end of financial opportunities. By paying bills on time, reducing outstanding debts, and managing credit wisely, you can rebuild your credit score over time.
CIBIL retains records of loan defaults for seven years from the date of the last report.
After five years, the negative impact may reduce, but the default record remains in your credit history and can still affect future loan approvals.
Yes, but with difficulty. Lenders may offer loans at higher interest rates or require collateral for approval. Some NBFCs and fintech lenders may provide personal loans to those with low CIBIL scores under stricter conditions.
Yes, but you may have to:
Provide collateral (secured loans)
Find a co-applicant with a good credit score
Opt for high-interest loans from NBFCs or fintech lenders
Yes. After 7 years, the default record is removed from your CIBIL history, improving your chances of loan approval.
Yes, but interest rates may be higher. A score above 750 is generally preferred for better loan terms.
No. Defaulting on a loan is a civil matter, not a criminal offense, unless fraud or cheque bounce cases are involved.
You can apply for a personal loan from fintech lenders, NBFCs, or peer-to-peer lending platforms that offer small-ticket loans with minimal credit checks.