A credit score or CIBIL is a numerical expression that depicts the creditworthiness of a consumer. Basically, it is a number that can be anything in between 300-900 depending on your financial data. There are many factors that should be considered while calculating the financial record of an individual such as total debt level, a number of active accounts, repayment history, missed payment record, etc. An individual with a high credit score has a high chance of getting a good loan amount.
On the contrary, if you have a bad credit score, you are not eligible for any loan from any financial institution whether it is private or government. A low credit score lowers down the chances of loan approval.
1.Factors Affecting Credit Score
There are various factors that badly impact your CIBIL score. A few of the prior reasons are mentioned below:
- You have bad repayment history of repayment
- You have done multiple inquiries for a loan on different apps
- You have high debt
- You have not made your past payment on-time
- You have a record of missed repayment
- Your CIBIL report contains multiple issues, and many more.
2.What is a Bad Credit Loan?
Bad Credit Loans is a kind of secured loan designed for individuals securing a low CIBIL score i.e. below 624. As it is a secured loan, it should be necessary for the consumer to deposit some kind of security or collateral against it. Moreover, you have to fulfill some mandatory conditions if you want to apply for a bad credit loan:
- You should be the Citizen of India
- You are a working professional either self-employed or salaried professional
- You are able to make the repayment on time
- Age should be more than 18 years
After finding you eligible on all essential parameters, the lender will approve the loan which can be any amount between 50, 000 to 5 Lakh.
3.Important Facts of Bad Credit Loans
Bad Credit Loans can be approved by the money lender considering various factors:
- An individual with a low CIBIL score can get a bad credit loan against collateral and hence the risk factor is low. As the risk is low, you get many options from which you can choose the institution providing loans at low-interest rates. Moreover, you can negotiate with your banks to get a loan at low ROI.
- In case you are not able to take a loan against any asset or property, the bank will provide you the loan on the basis of your monthly income and your current organization. If you are in a reputed firm and have stable monthly earnings, you will get a small loan at high-interest rates. It might be possible that they will offer loans at shorter repayment tenures.
Besides banks, you can avail loans from Non-Banking Financial Companies or NBFCs or Peer-to-Peer Lending (P2P) websites. NBFCs provide you with bad credit loans at higher ROI. P2P websites sanctioned a loan up to Rs.5 Lakh based on your eligibility.
4.Improve the Chances to Get a Bad Credit Loan
- Stable income is one of the prior factors that increase your chances of loan approval. If you have a fixed monthly income, it might be possible that the lender will approve your loan application even after your bad credit score.
- Deposit gold, asset, or collateral for a security purpose
- Apply for a loan along with a creditworthy co-applicant
- Repay the previously taken loan amount as per the mentioned time
5.Essential Documents Required for Bad Credit Loans
To apply for a Bad Credit Loan you have some mandatory document
- PAN Card
- Aadhaar Card
- 3 Months Account Statement
- Salary slip of past 3 months
- Passport size photographs
- Address proof, etc.
6.Alternatives for Bad Credit Loans
There are several alternatives for availing bad credit loans from which the top 7 options are mentioned below:
1.Loans from NBFCs
Non-Banking Financial Companies or NBFCs provide flexible loan options for the individual with a bad CIBIL rating. But, it is quite expensive as NBFC are private lenders and they charge more interest as compared to a bank.
- An individual securing a low credit rating may get a loan against security that has great value in the market like property, jewelries, etc. If you are eligible for a secured loan, you can negotiate with the bank to lower down the EMI, and rate of interest on it. You may also ask for longer loan tenure.
- For unsecured loan options, it is necessary to have a stable income on a monthly basis. However, in this case, the bank charges more ROI for an unsecured loan from the borrower.
3.Avail Loan from Your Existing Financial Institution
You may get your desired loan even after securing a bad credit score from your current financial provider. It is a preferable option as all your financial records are already saved in your current bank and they are well aware of your financial status.
4.Overdraft on Your Current Account
Overdraft on your current account is a good option to avail bad credit loans. Using this facility, you can avail a specified amount as a loan at NO or 0% interest. But don’t forget that the unarranged overdraft fee will be very expensive, so never try to cross the overdraft limit.
A dedicated credit card is issued by a financial institution to a person with a low CIBIL score. An individual can use these credit cards to avail the small loan. This loan is quite expensive as the interest rate on the credit card loan is higher as compared to others. Moreover, it is risky to apply for a loan on a credit card as a failed loan application will further damage the credit card of an individual.
Digital lenders are community-operated platforms that provide urgent funds to individuals with a bad credit score. Despite not meeting the loan eligibility criteria, they sanctioned the loan instantly.
7.Peer-to-Peer Lending (P2P)
P2P is a good alternative for getting bad credit loans. Using this platform, you will get a loan of around Rs.5 Lakh. The loan tenure at the P2P platform is decided by the lender but it can be in between 1-5 years.
Besides all these, there are several other loan alternatives for an individual having a low credit rating. For example: they can apply for interest-free budgeting loans offered by the Government of India if they are not able to pay their rent, etc.
A CIBIL rating is considered bad if it is below 624 and at this score, no lender will provide you the loan. Even if you have secured a score between 625 and 699 which is a fair rating, many banks will not find you eligible for the loan. In that case, try for other alternatives. There are many options to take bad credit business loans but their interest charge and loan tenure is different.
Visit the official website of the lender providing bad credit loans , submit your documents and yes, wait for the approval. If the lender will find everything suitable, they will approve a loan for you and within 30 minutes, they will disburse the loan amount to your bank. So, if you need any financial support and do not secure a good CIBIL rating, don’t get worried, try other options.