Image Credits: Kenstone Capital

Loans that have been designed especially for individuals with low or no credit score are known as bad credit loans. Many lenders are hesitant to lend to people who have a low credit score as there is a higher risk of them defaulting on the payments. A low credit score is an indication of the low repayment capacity of individuals and hence, these individuals find it challenging to find a lender who will offer them a loan.

A bad credit loan can rescue individuals who have low credit scores or have no credit score. These loans are usually secured loans which means individuals must provide collateral or security such as property, gold, financial securities, etc., to avail a loan.

Why Do You have a Low Credit Score?

Your credit score may be low due to any of the below-given reasons:

  • You would have missed paying your bills
  • You have not made repayments
  • Your credit application failed
  • You have borrowed in the past and not made timely payments
  • You have never taken a loan before and you have no financial track record whatsoever

When Should You Avail a Bad Credit Loan?

Bad credit loans should be availed only when necessary, which can be when you are in any one of the below-given situations:

  • Your loan application has been rejected by many lenders due to your low credit rating.
  • You have defaulted on your credit card payments.
  • You have no other way to manage your current debts.
  • Your financial situation has improved and you can afford to repay a loan to repair your credit score.

Things to Keep in Mind Before You Avail a Bad Credit Loan

Before you decide to avail a bad credit loan, ensure that you bear the below-given points in mind:

  • Do a proper research and explore the benefits offered by various lenders. Choose a lender that offers lower interest rates.
  • Before you apply for a bad credit loan, check your eligibility to ensure that your loan application does not get rejected as that may damage your credit score further.
  • Go through the terms and conditions offered on bad credit loans thoroughly so that there are no surprises later.
  • Evaluate your repayment capacity before you decide to apply for a bad credit loan.

How to Increase Your Chances to Secure a Bad Credit Loan

  • Prove that you can repay the EMIs – Despite your low credit score, lenders may offer you a loan if there has been an increase in your earnings. Hence, if you can communicate to the lender that your earnings have increased and you can afford to pay the EMIs, there are high chances of them offering you a loan.
  • Provide collateral – Providing collateral increase your chances to secure a loan as the risk associated with lending to you decreases. Lenders feel confident to offer you a loan as in the case of defaults, they can sell/auction the collateral to recover the loan outstanding amount.
  • Apply with a co-applicant – When you apply for a loan with a co-applicant who is creditworthy, your eligibility to secure a loan gets enhanced. So, when you have a low credit score and you wish to secure a bad credit loan, applying with a co-applicant is a good idea.

Which Lenders offer Bad Credit Loans?

If you have a low credit score, pledging collateral can help you get a good deal on loans. Providing collateral lowers the risk associated with lending to you and hence, you can negotiate with the lenders to offer you lower interest rates. Such loans that are given against collateral/security are known as secured loans.

However, if you do not have any collateral to pledge and are looking for unsecured loans, you may be eligible for a loan if your monthly earnings are on a higher side and you work for a reputable firm. In such cases, banks will charge you higher interest rates and there are also chances of you getting lower loan amounts. For instance, if under normal circumstances, your loan amount eligibility is about 80% to 90%, it will be 65% to 70% because of your poor credit score. There are also chances that you will be offered shorter repayment tenures as banks will look at collecting the loan amount as soon as possible.

Apart from banks, there are two other options that you can try if you have a poor credit score and wish to avail a personal loan –

  • Non-Banking Financial Companies (NBFCs) – There are many NBFCs that will offer you a personal loan despite your low credit score but may charge a slightly higher rate of interest. Usually, NBFCs are more flexible than banks when it comes to credit scores. Some NBFCs have sanctioned loans for credit scores that are as low as 360.
  • Peer-to-Peer Lending (P2P) – There are some lending websites, called P2P websites, that offer loans of up to Rs.5 lakh with tenures ranging between 12 months and 60 months to people with low credit score.

5 Loan Lenders Bad Credit Score

When you have a poor credit score as indicated by your low CIBIL Score, it sure will be a challenge to get a personal loan. However, it is not impossible. Despite your low score, many lenders will be ready to offer loans to you but they may charge a slightly higher rate of interest. Many fintech platforms and NBFCs these days offer personal loans despite a low credit score and some of these have been listed below:

  • Credit Sudhaar Finance
  • Loanbaba
  • Lendbox
  • Vintage Finance
  • Home Credit

Do not forget to shop around before you pick a lender and when you manage to get a personal loan, ensure that you make the payments regularly so that you can gradually build up your credit score.

FAQ’s on Personal Loan for People with Low CIBIL Score

What is the minimum CIBIL score I need to avail a personal loan?
If you have a score between 600 to 750, you can approach banks or financial institutions for a personal loan. However, since the score is neither good or bad, lenders will be cautious and may carry out additional credit checks before sanctioning a loan to you. They may also charge you a higher rate of interest.

How do I check my CIBIL score?
You can check your CIBIL or credit score on the BankBazaar website under the ‘Free Credit Score‘ section on the homepage. You can also check your score on the official website of CIBIL at Once you visit the site, you will be asked to enter your personal details such as name, phone number, email ID, etc., after which your score will be displayed to you.

I have never taken a loan or a credit card. Will, I still have a CIBIL score?
If you have neither borrowed from any bank or financial institution nor owned a credit card, you will have no credit history which will be indicated by a –1 score. Some lenders may lend to you as a first-time borrower because they will not be able to gauge the risk.

What is a good CIBIL score?
A CIBIL score between 750 to 900 is considered a good score and most lenders will approve your request for a personal loan. Lenders will also be happy to lend to you at a lower interest rate, and may even offer discounts on pre-closure charges and processing fees.

What benefits will I get if I have a good CIBIL score?
Having a good CIBIL score will give lenders the confidence to sanction your loan request. If you have a good credit score, you can negotiate with the lenders to give you a good deal on interest rates, processing fees, etc. You may even get pre-approved offers which will let you avail a personal loan instantly with minimal documentation.