CIBIL score is one of the most important factors that influence the decision of lenders when it comes to sanctioning a loan application. However it needs to be mentioned here that it is only one of the factors and there are other factors also that play a role in getting your loan application approved.
Almost 80% of the loans sanctioned have a CIBIL Rating of 750 and above. So what happens if you have a low cibil score? Is it not possible to get a loan sanctioned with a low score or is there a way around it? Here we offer you few tips that can help you get a loan despite a low CIBIL score.
Getting a Loan with a Low CIBIL Score / Bad credit in India:
Getting a loan sanctioned when you have a low score could throw up some challenges. In such a situation a lot will depend on other factors like the type of loan you are seeking, employment details and also the lenders one approaches. Let us look at these factors separately and see how they impact the decision making when the score is low.
Type of Loan: Getting a secured loan like a home loan will be less of a challenge when compared to getting a personal loan with low CIBIL Score. Depending on the loan type, the size of the loan and also the tenure the lender may agree to lend or not to lend to a person who does not have a healthy score.
The interest rates at which the loan is offered to such an applicant will also be more as compared to someone with a higher score. Thus if the loan is offered generally at 10% the applicant with a lower score will get it at 2% to 7% higher depending in which type of loan it is and also other factors like loan tenure, employment details etc.
Employment Details: If you are employed at a government owned organization, a reputed MNC or with a company that has a tie-up with the lender then a low score will be less of a trouble. Job stability also works in the favor of the applicant. Those who are self-employed or are not stable in their employment will find that getting loan with a low score will be more of an uphill task.
Tips on Getting a Loan with a Low Credit Score:
If your credit score is low and you do not have a stable job with a reputed organization then it makes more sense for you to approach a NBFC or a co-operative bank for a loan. These lenders are likely to be more flexible with credit scores when it comes to loans.
If one has a score lower than 650 then it makes more sense to not approach a mainstream bank. Non-mainstream lenders may be willing to offer loans at much lower scores albeit at higher interests. While some may be willing to offer loans at lower scores some may not consider the credit score at all.
One could also consider the option of using a family member as a co-borrower or a guarantor in case one has a low score. Co-borrower and guarantors differ in their roles and responsibilities. A co-borrower is also an applicant along with the primary applicant, his income and credit score (if better) is considered when evaluating the loan application. All applicants are equally responsible for repaying a loan.
A guarantor is not a co-borrower; he or she only comes into the picture when the applicant is unable to pay. His income is not considered and he/she will not be liable to pay the EMI till a borrower defaults. A co-borrower with a good score can become a primary applicant while a guarantor could help in case the credit score of the applicant is marginally low. A co-borrower or a loan guarantor should get into their loans with full awareness about their obligations.
If one has a low score they could consider alternative methods of borrowing. Options like taking a loan against property, securities, gold could be used or one could borrow from friends and family. When borrowing against assets it is advisable not to borrow against the house one lives in as it or against a life insurance policy of the primary earner. These can compromise the safety net that one builds for the family and no loan is so important.
Though the above are few ways one can borrow with a low score, the best option still remains to try and improve their score if they have time. If the score is low for a genuine reason then it could take up to six months to try and improve it but with a good score one can borrow at competitive rates and will have to option to approach any lender unlike the limited choice in case of a low score.