The first instinctive actions for a bank or other financial institution when you apply for a loan will calculate your credit score. The credit score helps them evaluate your past payment history, credit history, payment abilities, and much more.
The lending party might consider other income status and asset holdings when applying for various types of loans like secured personal loans. If you seek a collateral-free or unsecured personal loan, credit score becomes a central qualification point.
Although credit score helps banks determine whether you are reliable enough for a personal loan or not, it doesn’t mean people’s bad CIBIL score is dismissed. On the contrary, plenty of banks and financial service providers offer personal loans for people with low credit scores.
CIBIL Score: Definition
CIBIL stands for (Credit Information Bureau Limited) score. Financial outfits like banks and other firms always check the reliability and authenticity of a loan applicant before lending them money. For the loan calculator purpose, they go through all of his previous records and past interactions with the bank.
If the candidate has a flawless record- timely debt clearing, regular credit payment and more, the bank will assume the individual to be of high creditworthiness.
Although the CIBIL score of an individual is confidential, it plays a pivotal role in the loan application process. Banks and other financial lending parties consider CIBIL score as their primary qualifying parameter to determine if they merit a loan.
It’s easy to get the loan if the applicant ranks up in the scoring system. Things get more challenging if the person doesn’t fit in with the expected standard for loan application.
Although it’s possible for loans for bad credit direct lenders to get a financial loan, the interest rate (ROI) is most likely to be higher than that of a loan with a good score. Banks and private financial firms offer personal loans against collateral as well.
Loan against a Low CIBIL Score
As mentioned already, there are plenty of banks and financial outfit that are willing to offer loans to people with bad CIBIL score. It could get complicated with their terms and conditions. Here’s a detailed breakdown on how to get the best possible loan with a bad score.
1. Income Proof
Credit scores help the banks in identifying the creditworthiness of the loan applicant. This is to determine whether the person can pay back the loaned amount in due time without any delay or failure.
With an upcoming hike in salary or alternate income source, the applicant might find himself in favourable financial health. Providing the bank authorities’ income details might help convince them for the loan sanctioning, albeit the interest rate could be high.
2. Low Personal Loan
A loan applicant should opt for a low personal loan instead of going for a high amount where the likeliness of getting rejected is high. The bad CIBIL score will come into play here, helping the case go against the applicant.
The creditworthiness and repayment ability of the applicant would be much unconvincing with the low rating. The banks and other financial firms might see this as a high-risk venture.
With a low amount for the personal loan, there are greater chances that the bankers will agree to the loan request. A relatively small amount would be more comfortable for future repayment as well.
3. Joint Loan or Guarantor
Sometimes it could become a challenge for one to apply for a personal loan without having a healthy CIBIL score. During such situations, banks suggest the applicants to instead go for a joint loan or introduce a guarantor instead.
In both cases, the co-applicant or guarantor must have a good credit rating to get the loan’s bankers’ nod. A good credit score for the guarantor or the co-applicant not only manages to convince the bank but accelerates the loan application as well.
4. Resolve Errors
There have been several numerous cases where the loan seeker has been adhering to the banking policies diligently – may it be time instalment payment or credit card dues clearance. The individual continues to struggle for a qualifying credit rating. Further reviewing could show that the loan applicant had a bad rating due to specific misreporting or errors.
Although there is only much the applicants can do with such mistakes, such situations can cause unwanted issues. It’s best to check one’s CIBIL score at every interval to stay ahead of the curve. If the applicant chances upon any potential error, they must report back to the relevant authorities for quick rectification.
5. Request for an NA or NH
The last entry to this list, the applicant must request the lenders to consider the loan application under NA or NH conditions. If the candidate has an inactive credit period for three years before the loan application, it could be marked by an NA or NH on the credit report. Explaining the situation to the banking official may result in getting the loan approval, albeit with a higher interest rate.
6. Choosing the right lender
Bad CIBIL score means that the applicant has a poor banking record; potentially a risky customer for the lender- thereby meaning the chances of getting any loan is bleak if not nil. Hence, if one is still in need of a personal loan, the individual can browse through lending options willing to provide the money, but against a high ROI.
The loan applicant must always conduct a background check on his own to authenticate the credibility of the lending parties. Every loan applicant must have complete knowledge of market interest rates against the requested loan.
There might be situations when the banking party might project a false image-stating their ROI in months and not years. Calculating the ROI over a long period could amount to a remarkable difference on the whole.
If an individual struggles with a low CIBIL score, then there are ways through which the issue can be addressed. There are quite a few guides such as this blog that can help in navigating the process to achieving a better CIBIL score.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.