How to get a personal loan with low CIBIL score?

Personal loans are approved based on the credit worthiness of the applicant. The loan amount, too, is decided based on the applicant’s credit worthiness.

So what is credit worthiness? Your credit worthiness is basically an estimation of how good you are with debt. If you have existing loans or credit cards, how often you have repaid these debts and how timely you have been in repayment of loan will decide your credit score.

If you have a low credit score, your application may be rejected by the bank. If you are looking for a personal loan for low CIBIL score, there some banks and financial institutions that offer loans to people with low credit score. In such cases, though, the interest rate may be higher and the loan amount lower than what you expected.

What is CIBIL Score and why is it important for Personal Loan?

A CIBIL Score is a measure of your credit worthiness. It is calculated by the Credit Information Bureau (India) Ltd, also known as CIBIL that is a Reserve Bank of India (RBI) authorised credit agency.

A CIBIL Score ranges from 300 to 900, with 900 being the highest. The closer your score is to 900, the higher are your chances for getting a loan.

The CIBIL Score is calculated based on how you have handled your existing debts. So if you have made timely payment of your credit card bills and loan EMIs, your credit score is likely to be high. On the other hand, you have defaulted on a credit card bill or a loan repayment or have exceeded the limit of your credit card, your credit score will be lower.

A person with a high credit score is considered an ideal candidate for any kind of loan, including personal loan. Most banks consider 750 to be a good score. Anything lower than that could lead to cancellation of loan as people with lower credit score are considered ‘high-risk’ candidates.

While approving a loan, the bank considers your repayment capacity. Your repayment capacity is determined by your credit score as well as job security and bank balance.

If you have a credit score that is above 750, not only will your loan get approved but you can also negotiate the interest rate, loan tenure and repayment schedule. If your credit score is anywhere between 600 and 750, some banks may give you a loan. However, interest rates will be higher than usual and the loan amount may be considerably lower than what you want. Any credit score below 600 is considered an extremely poor creditworthiness. So your loan is most likely to be rejected.

What factors cause lower CIBIL Score

There are several factors that affect your CIBIL Score. The biggest factor influencing your credit score is your track record of past payments. This includes how consistently you have made payments on your existing debt and if there were any delays in payments. If there were any recent delays in repayment, the credit score is adversely affected.

If you have recently written off a loan, your CIBIL Score is likely to be poor. Multiple write offs and settlements of loan also hamper the credit score of the individual.

Banks also consider a ratio of your income against any existing loans. The higher this ratio, the better are your chances to get a loan. Any high loan balance has a negative impact on your credit score.

How to get a personal loan for CIBIL Score

If you have a poor CIBIL Score, it is generally advisable to wait a few months, work on improving the CIBIL Score and apply again when the score has improved. If you have multiple debts or loans, your credit score will be low. So pay out some of these loans. Make sure your EMIs and credit card bills are paid on time.

However, if there is a dire necessity, there are options available to individuals with low CIBIL Score. There some banks and financial institutions that offer personal loan for low CIBIL Score. Look for such lenders.

If a bank refuses to give you a personal loan, you may consider approaching a non-banking financial company. These companies offer loans to low credit score individuals. The rate of interest, however, is much higher in such cases. Your negotiation capacity is also limited if you have a poor credit score but try to bring the interest rate down.

If you are having trouble getting a personal loan, you can also consider a loan against a collateral. Instead of an unsecured loan, you may be more successful finding a secured loan against a property or asset collateral.

You can also look for a guarantor within the family who has a good credit score. The guarantor will act as an assurance to the bank that you will not default on the loan. Another option is to go for a joint loan with someone who has a good CIBIL Score. It could be a spouse or any other family member.

Sometimes banks and financial institutions have tie ups with a company for providing loans to employees. You can check if your employer has any such arrangement with a lender. The eligibility criteria for such loans are comparatively more relaxed than that for the usual personal loan.

FAQs

How can I find my credit score?

CIBIL Scores are easily available online. You can get your credit score using the calculator tool available on the website of CIBIL credit ratings. Apart from CIBIL, several aggregator websites also offer to calculate the CIBIL Score for you. Some of them offer the service for free.

On the CIBIL website you can calculate your score. You have to fill out an online form with details of your loan details as well as personal information. Thereafter you will be taken to the payments page where you have to make a payment of Rs470. Payments can be done using netbanking, credit or debit card as well as online wallets. After making your payment, you have to answer five questions about your credit history. Your credit score is calculated and sent to you within 24 hours.

What is the credit utilisation ratio?

The credit utilisation ratio is a measure of your debt. It is the percentage of your credit limit that you have utilised. A higher credit utilisation ratio would mean you have spent a large part your credit limit. This means that you are increasing your debt. This is not considered healthy by banks and lenders at the time of approving your loan. A credit utilisation ratio of 30 per cent of your credit limit is considered a good utilisation ration. So instead of maxing out your credit cards, you may want to improve your credit utilisation ratio if you are looking for a personal loan.

I don’t have a credit score. Will that affect my loan application?

Yes. Not having a credit score may adversely affect your loan application. If you have a CIBIL Score it becomes easier for the bank to evaluate your creditworthiness. However, if you don’t have one, the bank will take into consideration other factors such as your age, income, and job stability to calculate your creditworthiness.

To make matters easier you can start building a credit score. Start with a secured credit card which is issued against a fixed deposit. You can pay the bills on time and make sure your credit score is high.