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How to avail of a Personal Loan despite having a low CIBIL Score?

Availing of an online personal loan regardless of having a low CIBIL score is possible. You have to convince your bank that you are perfectly capable of repaying the loan on time. Whenever you approach a financial institution seeking a personal loan, your CIBIL score plays a prominent role in their decision to lend you money. Personal loans are risky for the lending party as this is an unsecured loan with no assets or security. Hence it is widely assumed that a low credit score will make obtaining a personal loan difficult. However, several financial institutions are often willing to lend to people with low CIBIL scores.

CIBIL Score – What is it?

Your CIBIL (Credit Information Bureau India Limited) score indicates the health of your credit history. Acknowledged by all national financial institutions, it is India’s primary credit evaluation mechanism. It is a number designated to you specifying your credit card and loan payment history. It provides banks an insight into your debt management ability and is a critical factor for your loan approval.

Your CIBIL score will be in the range of 300 to 900, with a score of 750 and above usually improving your chances of instant loan approval. Regular payment of bills and debt assures a good score, failing which your credit score could suffer.  

Possible reasons for a low CIBIL Score

  • Availing too many online personal loans 
  • Several rejections on loan and credit card applications (your credit score reduces every time a bank seeks your CIBIL score).
  • Missing payments of loan installments.
  • Exhausting the credit limit on your credit card.
  • Failing to pay credit card bills promptly.
  • Only paying the minimum due on your credit card bill instead of making full payment (while this is maybe acceptable to the banks, this negatively affects your CIBIL score).
  • Credit Card settlement to close your card while repaying a lesser amount rather than your total outstanding.
  • Not having a credit history at all indicates a default credit score of 0.
  • All the above factors will affect your CIBIL report adversely and reduce your chances of instant loan approval. Even if your loan request is accepted, you might be expected to pay a higher interest rate on the same compared to an individual with a better credit score.

Options to improve your CIBIL Score

While banks may not consider it, several other financial institutions might still be willing to grant loans to individuals with poor credit scores. 

Some ways in which you can rectify your low score are:

  • Always pay credit card bills in full.
  • Avoid utilizing your complete credit card limit regularly.
  • Reduce your debt by limiting your dependency on borrowed funds.
  • Being averse to loans or cancelling all cards after clearing your debt may adversely affect your credit score. On the other hand, taking loans occasionally and maintaining a credit card are good ways to create and continue your credit history.
  • Timely payment of your utility bills would be good practice since it will eventually be a parameter that influences your CIBIL score.
  • In case you face rejection on your credit card or loan application, address the cause of the rejection first before reapplying.
  • Proof of stable employment and income like a salary slip instills confidence in financial institutions about your capability to repay loans on time (proof of additional sources of income or salary increment might also be considered).
  • Regular payment of Income Tax
  • Maintaining a steady bank balance.
  • Applying for a low amount of personal loan thus reducing the financial institution’s risk
  • Applying for an online personal loan with the help of a guarantor who has a better credit score than you
  • Negotiating with your bank (by agreeing to slightly higher interest rates etc.) to consider your application if you have no credit history in the past 36 months
  • To initiate your credit history (when your loan or credit card application has been rejected), you can consider opening a Fixed Deposit (FD) in a bank of your choice and then applying for a credit card against the FD.
  • Rectify errors on your credit report immediately by contacting CIBIL to ensure the latest accurate data is available to them.

Apply for a personal loan despite having a low CIBIL Score

Getting an instant loan approval when applying for an online personal loan with a low CIBIL score is challenging but surely not impossible. Detailed market research will help you find several willing financial entities who would provide you with a personal loan. They might include conditions to safeguard their interest. Most importantly, once granted a personal loan, ensuring timely payment of your installments will help you build a better credit score.

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