Introduction:
Many individuals face challenges when applying for loans due to low credit scores in India. These scores reflect an individual's creditworthiness and repayment abilities, and hence, influence lenders' perception of risk. While it may seem difficult to secure a loan with a low credit score, some lenders offer loans for low credit scores.
With a wide range of loan products and flexible eligibility criteria, Shriram Finance strives to help individuals overcome their credit-related hurdles. This article will take you through the tips and ways of securing a low credit score loan.
What is a Credit Score?
A credit score is a numerical representation of an individual's creditworthiness based on their repayment history, credit utilisation, and other factors in their credit report. In India, the most widely recognised credit rating system is the CIBIL™ (Credit Information Bureau Limited) score. Banks and financial institutions use this score as a parameter to assess an individual's credit rating for loan approval.
A credit score ranges between 300 to 900. The credit score is calculated based on the information provided by financial institutions to credit rating agencies. This information is based on your payment history and your overall credit profile.
How can I avail of a loan even with a low credit score?
Here are some practical tips that can help you obtain a loan, despite having a low credit score.
1. Having a Good Income
Lenders often consider your income or earning potential while evaluating loan applications. If you can prove that you can repay loans, by showing a good steady income or sources of additional income, you can easily get an instant loan for a low credit score.
2. Apply With a Co-applicant
If your spouse or family member has a good credit score, including them as a co-applicant, when you apply for a loan, increase your chances of loan approval. Their positive credit history can help you get a loan instantly when you apply for an online loan with a low credit score.
3. Pay Higher Interest Rates
Some lenders offer low-credit loans to borrowers with low credit scores at relatively higher loan interest rates. If you have an immediate cash requirement, this option may be suitable for you.
4. Apply For Loan Against Collateral
Some lenders may sanction loans for poor credit scores if you pledge collateral. Assets such as shares, property, fixed deposits, or gold can be used as collateral to secure the loan.
5. Work on Improving Your Credit Health
While the above tips can help you obtain a loan for bad credit, it is essential to improve your credit health in the long run. Repay existing debt, maintain timely EMI payments, and pay utility bills on time to restore your credit health and increase your eligibility for future loans.
6. Apply for a lower amount
When you apply for a loan with a lower amount, it reduces the risk of payment default. Hence, lenders consider a low amount loan for low credit score borrowers.
Things to Keep in Mind Before You Avail a Bad Credit Loan
Personal loans for bad credit can be helpful during tough times. However, before applying for a personal loan, consider the following points:
1. Do Proper Research
Since low-credit loans come with higher loan interest rates and additional charges, it is crucial to conduct thorough research. Compare offers from different lenders to make an informed decision.
2. Fulfill Eligibility
Ensure that you meet the eligibility criteria specified by lenders for low credit score loan approval. Applying without fulfilling these conditions may lead to rejection and further damage your credit score.
3. Know The Terms and Conditions
Carefully read the terms and conditions of the loan before proceeding. Pay attention to all the clauses to check for any hidden charges or financial implications that may arise later.
4. Evaluate Your Repayment Capacity
Evaluate your repayment capacity before opting for a very poor credit score loan, as it comes with a higher interest rate. Defaulting on payments can trap you in a cycle of debt and further lower your credit score.
Documents Required When Applying for a Loan for a Low Credit Score
Whether you apply for a high credit score loan or a loan for a low credit score, you need to provide the following documents:
- ID proof - Driver's license, Aadhar Card, Passport
- Address proof
- Bank statements for the past 6 months
- Salary slips for the past 6 months
Note that, if you are a self-employed professional/businessman, additional documents may be required, such as company registration information, TIN/Service Tax registration proof, profit and loss statement, balance sheet, and ITR for the past 3 years.
Difference Between Secured and Unsecured Loans
A secured loan is backed by collateral or security such as property, gold, or fixed deposits. The collateral reduces the lender's risk, allowing for lower interest rates and longer repayment periods. Examples of secured loans include loans against property, home equity lines of credit, and car loans.
Unlike secured loans, unsecured loans do not require collateral. These loans are based on an individual's creditworthiness and ability to repay. Due to the increased risk for lenders, unsecured loans carry higher interest rates. Examples include credit cards, personal loans, and student loans.
Key Highlights
- Capitalise on your earning potential to increase your chances of loan approval.
- Consider including a co-applicant with a higher credit score to improve your loan application.
- If you need cash immediately, consider settling for a higher interest rate or offer collateral such as shares, property, fixed deposits, or gold.
- Focus on improving your credit health over time through responsible financial habits.
Conclusion
Obtaining a 300 credit score loan is challenging but possible by utilising the above-mentioned practical tips. Many lenders consider loan applications with low credit scores, it is always recommended to get a loan for a low credit score from a trusted lender. However, it is crucial to improve your credit score over time through responsible financial habits.
If you're looking for accessible loan options despite a low credit score or want to improve your credit health, explore Shriram Finance's offerings.
