Urgent Loans from NBFCs With Bad Credit In India: What You Need To Know

Life is full of uncertainties, and unexpected financial needs can arise anytime. Unfortunately, bad credit can make these situations even more challenging. In India, a credit score is a numerical representation of an individual’s creditworthiness and plays a crucial role in the loan approval process.

When you have a bad credit score, traditional lenders like banks might hesitate to approve your term loan application. Having a bad credit score can have serious implications for your finances. Lenders will either decline your loan application altogether or charge you higher interest rates to compensate for the perceived risk of loan default. A poor credit score can also impact your job prospects and even result in higher insurance premiums.

However, you can still keep hope! Several strategies can help you secure an urgent loan with NBFCs, even with a bad credit score.

What is a Bad Credit Score? 

A bad credit score generally ranges from 300 to 579, indicating a higher likelihood of credit challenges. It suggests a history of late payments, defaults, or high credit utilisation, making accessing loans or credit at favourable terms harder.

A fair score, ranging from 580 to 669, suggests some credit issues but may still qualify for certain loans. Good scores, between 670 and 739, reflect responsible credit management, leading to better borrowing options. Very good scores (740-799) and excellent scores (800-850) offer the best rates and terms, showcasing strong financial health and credibility to lenders.

How To Get a Loan With Bad Credit?

Good credit is critical in establishing your credibility. It is also vital for securing favourable terms for loans and credit. A strong credit history demonstrates to lenders that you are a responsible borrower likely to repay debts on time. But with average credit also, you may open your loan approval chances. Here is how.

Approach Non-Banking Financial Companies (NBFCs)

Traditional banks might be stringent with their credit score requirements. However, NBFCs often have more flexible lending criteria. These financial institutions are more open to considering different factors, such as employment stability, income, and repayment capacity. Approach NBFCs for loan options, as they might be more willing to work with individuals with a bad CIBIL score.

Understand your CIBIL Score

Before you begin your loan journey, it is essential to understand your CIBIL score and credit report. You can apply for a free credit report from the credit bureaus once a year. This will help you identify any errors or discrepancies that might be pulling your score down. Understanding your financial standing is the first step towards improving it and finding suitable loan options.

Opt for Secured Loans

Secured financing requires collateral, such as a car, property, or fixed deposit, to back up the loan amount. NBFCs are more willing to approve a secured loan since they have an asset as a guarantee in case of default. Opting for a secured loan increases your chances of approval despite having a bad CIBIL score. However, remember that defaulting on a secured business loan can lead to the loss of the pledged asset.

Look for Co-Signers

A co-signer is someone with a good credit history who agrees to take joint responsibility for the loan with you. Having a co-signer boosts your credibility and increases the likelihood of getting approved for a loan. However, ensure that your co-signer is someone you trust and who understands the responsibilities involved, as any default can negatively impact both your credit scores.

Explore Peer-to-Peer (P2P) Lending

P2P lending platforms connect borrowers directly with individual lenders. These platforms often have different eligibility criteria compared to traditional NBFCs. While they might still consider your CIBIL score, they also consider your financial profile, intentions for the loan, and other factors. P2P lending could be a viable option for obtaining a loan with bad credit.

Opt for a Joint Loan

If you have a family member or a spouse with a good credit score, consider applying for a joint loan. A joint application means that the NBFC company will consider both your and your co-applicant’s credit scores, income, and repayment capacity. A stronger applicant can compensate for the weaker one, increasing the chances of approval for the loan.

Apply for a Smaller Loan Amount

When you have a low CIBIL score, asking your preferred NBFC for a smaller loan can increase your approval chances. A small funding amount can pose less risk to the NBFCs, making them more willing to consider your application despite your credit history. Additionally, by taking a smaller loan, you can work on improving your credit score through timely repayments.

Show a Stable Income

NBFCs are more likely to lend to individuals with a stable and consistent source of income. A regular income assures the lender that you have the means to repay the loan on time. Therefore, if you have a stable job or a reliable business income, emphasize this during the loan application process.

Offer a Strong Repayment Plan

Demonstrate a solid repayment plan to the lender, showcasing how you intend to repay the loan. Highlight your budgeting strategies and your commitment to repaying the debt on time. A well-thought-out repayment plan can increase the NBFC’s confidence in your ability to handle the loan despite your bad CIBIL score.

Improve your Credit Score

Lastly, work on improving your CIBIL score over time. While this might not provide immediate results, it will positively impact future NBFC loan applications. Start by paying your bills and existing loans on time, reducing credit card usage, and avoiding unnecessary credit inquiries. Gradually, your credit score will improve, making securing loans on better terms easier.

If you have a bad CIBIL score, do not worry because it doesn’t necessarily mean you cannot get a loan. To better your chances of loan approval, you should evaluate your financial situation, consider alternative NBFC loan apps, and adopt good financial practices. It is important to have patience and consistency while improving your credit score. By making smart financial choices and being determined, you can pave the way for a brighter financial future.