Best Personal Loans for Bad Credit in India - Things You Should Be Aware Of
A bad credit score or no credit history are roadblocks when availing of a personal loan on favourable terms. Financial institutions do not advance loan for bad credit as a low credit score indicates a higher risk of default in payments. However, thankfully, there are a few lenders who provide credit to such borrowers. They tweak the terms and conditions and customize their lending, thus helping people get an urgent loan with bad credit in India. Let’s check out which bank gives personal loans with bad credit in India.
What are Loans for Bad Credit?
Loans for bad credit are advances that are approved for people who have a low credit score. A low credit score is either a reflection of poor or short credit history. But financial emergencies can strike anyone. Loansfor bad creditact as a panacea and help applicants seek loans during times of need. These loans are often approved at a higher rate of interest and customized terms and conditions. The loans for bad credit can be secured or unsecured, depending upon the lending company’s policies and the applicant’s profile.
Best Bad Credit Loans in India 2022
A borrower looking for an urgent loan with bad credit in India can choose between these best bad credit loans in India:
Secured Loans – Applying for a secured loan is the easiest way to get bad credit score loans. The loan is approved against collateral or security and therefore lowers the lender’s credit risk. This, in turn, helps the borrower avail of a loan at a lower rate of interest and favourable loan terms.
Unsecured Loans – In case the borrower is unable to pledge any collateral, an unsecured loan can be applied for provided there is a stable income and low debt-income ratio. However, But the unsecured loan will be approved at a higher rate of interest.
Loans From NBFC – The Non-Banking Financial Companies (NBFCs) are more lenient than scheduled banks when it comes to eligibility checks and credit score check. Therefore, the chances of getting NBFC personal loan for bad credit are more than obtaining a loan from banks. However, loans from NBFCs are approved at a higher rate of interest.
Choose your Existing Banker – In case your credit score is low because of no credit history, you can apply for an urgent loan for bad credit with your existing banker. Customers who are eligible for a personal loan, have a good relationship with the bank, and have a healthy financial track record will be approved for an urgent loan for bad credit by their existing bank.
Apply for Current Account Overdraft – If you are a self-employed individual and have a current account in a bank, you can avail of an overdraft facility to meet the urgent financial shortfalls.
Digital Lenders – Apart from banks and NBFCs, digital lenders also advance credit. These lenders operate through mobile apps. They do not have stringent eligibility checks. They advance short-term loans for bad credit without much hassle.
Reasons for Low Credit Score in India
Low credit scores have great financial implications. Let’s understand what exactly causes a low or bad credit score:
Delayed credit card bill payments – Missing out or delaying credit card payments is the most important factor that causes a plunge in credit score. It is pertinent to mention here that the entire credit card outstanding is to be repaid either before or on the due date. Paying only the minimum amount due on the due date causes a drop in the credit score.
Overspending and Reaching Credit Limit Regularly - Although you might be paying off your credit card bills regularly, reaching the credit limit quickly and regularly is not considered to be a good sign. It is interpreted as exorbitant spending. This behaviour is not appreciated and therefore causes a dip in the CIBIL score.
Too many ongoing loans - Having too many active loans is a warning signal for the lender. A very high debt-income ratio can push the borrower to default on payments. This impacts the credit score negatively.
Unbalanced Credit Mix – There should be a right quantum of secured and unsecured loans in the kitty if you need personal loan with bad CIBIL score. As unsecured loans are without collateral, having too many of them in your loan portfolio lowers your credit rating.
Not Adequate Credit History – If you haven’t availed of a loan before and do not have a credit card, you’ll not have a credit history. Thus, the lending company may not be able to gauge your creditworthiness. Therefore, it is recommended that you start your credit journey with a secured loan or a credit card.
Things You Should Consider Before Availing Loans for Bad Credit
Personal Loans for bad credit can help you sail through the tough times. But before you apply for a bad credit loan, keep the following points in mind:
Explore Well – A bad credit loan will come at a higher rate of interest. The processing fee and other charges will add to the cost. It is therefore important that you do proper research, evaluate the benefits, and compare the offers of different lenders carefully.
Check Eligibility – Loans for bad credit will be approved only if the eligibility conditions are fulfilled. Applying for a bad credit loan without fulfilling eligibility conditions can lead to rejection of the application, damaging the credit score further.
Understand Terms and Conditions – It is important to understand the terms and conditions of the personal loans for bad credit before proceeding. These loans come at a higher rate of interest with several clauses. Go through each clause minutely to avoid hidden charges and financial implications later.
Consider Your Repayment Capacity – Urgent Loans for bad credit levy a higher rate of interest. Going in for the same without evaluating your repayment capacity can push you into defaulting on payments. This can lead to a debt trap, further lowering your credit score. Consider taking a bad credit loan only if you can repay the Equated Monthly Instalments (EMIs) comfortably.
How to Avail Bad Credit Loans in India?
Getting loans for bad creditrequires considerable effort and research and is not a straightforward deal. Thankfully, it’s not impossible to get one. If you wish to avail of a bad credit loan in India, here are a few steps that can help you get one:
Know Your Credit Score – A credit score above 750 is considered good for Personal Loan. A score higher than 750 enables the borrower to avail of a personal loan at favourable terms and conditions. However, before you apply for a personal loan, check CIBIL score for free on MyMoneyMantra. The same can be checked for free online.
Assess Your Financial Standing - Ensure that there will be no defaults in repayment of the loan. Consider a loan only if the current income can support additional monthly outflow in the form of loan EMIs.
Compare Personal Loans for Bad Credit – A Personal Loan for a Low credit score will cost more. So careful research and comparison of benefits offered along with terms and conditions applicable are important. Review different lenders and read through the fine print carefully before selecting the lender.
Check Eligibility – An eligibility check or pre-qualification will help you know whether you’ll qualify for the loan without making a hard inquiry. Every hard inquiry leads to a further drop in the credit score.
Opt for Secured Loans – A secured loan is easier to get even if you have a bad credit score. Opt for taking a loan against gold, Life Insurance Policy (LIC), Public Provident Fund (PPF), or any other financial instrument. These will act as the financial backing and therefore let you avail of a personal loan with a low Annual Percentage Rate (APR).
Add Co-ApplicantsTo your Loan– A co-applicant with a good credit score can help you avail of a personal loan despite the primary applicant having a bad credit score.
Provide Income Proof – If you have adequate proof to validate your total income, getting a personal loan with bad credit becomes easier. Therefore, ensure that your employment information, business details, (Income Tax Return) ITR documents, etc., are in place before you apply for a bad credit loan
Which Lenders Offer Bad Credit Loans?
If you have a bad credit score and want to know which bank gives personal loans with bad credit or in India, here’s help: Loans for bad credit can be availed through any of the financial lenders mentioned below:
Non-Banking Financial Companies
Digital Lenders or online loans for bad credit
Peer-to-Peer Lending (P2P)
Scheduled Banks - Scheduled banks have stringent eligibility conditions. But they approve loans with bad credit if all other eligibility conditions are met. Pledging collateral and providing adequate proof to validate your repayment capacity can help you negotiate for a low rate of interest despite a bad credit score. Scheduled banks sanction loans with stricter conditions and higher charges to applicants who have a credit score between 500 and 750. You can check credit score for free on MyMoneyMantra. Prominent scheduled banks offering private loans for bad credit are:
Non-Banking Financial Companies – Compared to scheduled banks, Non-Banking Financial Companies are more flexible and lenient with their lending terms. That’s why they can be called low credit score personal loan lenders. Chances of getting a low value, shorter-duration loan are high despite having a low credit score. Some NBFCs also sanction loans to applicants who have a credit score as low as 360. Leading NBFCs offering loans with bad credit are:
Name of NBFC
Rate of Interest
10.50% p.a. onwards
11.99% p.a. onwards
13.99% p.a. onwards
13.00% p.a. onwards
14.50% p.a. onwards
Digital Lenders – Digital lenders, operate through mobile and web apps. They offer short-term loans with a low principal value. After a prior eligibility check, they approve loans to applicants with a low credit score. Leading digital lenders offering loans with bad credit are:
Peer-to-Peer Lending (P2P) – This kind of lending enables borrowers to borrow loans from other individuals, thus eliminating middlemen. The lenders can be within the family or private players in the money lending business. The rate of interest charged is quite high.
✅ How can I ensure that my loan application is not rejected due to a bad credit score?
To increase your chances to avail of a bad credit loan:
Apply for a shorter loan term
Apply for a low principal value
Prove your repayment capacity
✅Which lenders offer personal loans for bad credit?
Personal loans for bad credit can be availed from:
Non-Banking Financial Companies
Peer-to-Peer Lending (P2P)
✅ What is considered a bad credit score?
A credit score is recorded on a scale of 300-900.
Between 800 and 900 – Excellent
Between 750 and 800 – Good
Between 625 and 750 - Average
Below 625 - Bad
It is recommended to maintain a credit score of 750 and above to avail of loans on favourable terms.
✅How much loan can I avail myself of with a bad credit score?
The lower your credit score, the lower will be the principal loan amount sanctioned. Financial companies generally do not lend more than Rs. 5 lakh to people with a bad credit score. The loan eligibility will depend upon the applicant’s profile.
✅How can I apply for a bad credit loan?
To apply for a bad credit loan, the applicant needs to closely evaluate the terms and conditions offered by different lenders.
Visit websites of different lenders.
Choose the relevant loan term and principal amount.
Check loan eligibility with your credit score.
In case the applicant is eligible for the loan, check the rate of interest and other charges that will be charged on loan.
Compare the APR of different lenders.
Apply for a bad credit loan with the relevant lender
✅ Can I get a loan top-up on a bad credit loan?
After a bad credit loan is sanctioned and disbursed, an applicant can apply for a loan top-up if there have been no delays and defaults in EMI payment for a specified number of months.
✅ How long does it take to get a bad credit loan approved?
The loan application process and processing time for a bad credit loan are the same as in the case of a normal personal loan. The time taken to approve a loan varies from lender to lender.
Q8. What are the documents required to apply for a bad credit loan?
The documents required for a bad credit loan include:
Documents for collateral security
✅Who can apply for a bad credit loan?
In most cases, one can apply for a bad credit loan if:
Age18 years and above as fixed by the lending institution
Salaried or self-employed with required work experience
✅What makes up a bad credit score?
The CIBIL score comprises of four factors, each having a specific weightage: