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    How to get loans even with a low credit score

    Synopsis

    The cut-offs in credit scores used for evaluating loan applications can vary across lenders. Some lenders set a high cut-off in credit scores while approving loan applications while others may approve loans to those with a lower credit score.

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    If you have a low credit score, you can consider including a guarantor to improve your loan eligibility.
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    A credit score is one of the most important metrics that a lender uses to analyse an individual's creditworthiness. A score of 750 or above is considered good and helpful in getting loans approved easily. However, maintaining a good credit score is not easy for many as it requires discipline, money management skills, and most importantly, adequate cash flow to repay debts on time.

    However, did you know that you can get a loan even if you have a low credit score? That is right, you can still get a loan with poor credit history.

    Before you read any further, it is prudent to note that one should always first work on improving one's credit score to get more favourable credit terms in future loans. Use the options mentioned here only in emergency situations where you have no other option left but to borrow.

    So, here are six ways you can get a loan even with a poor credit score.

    1. Broaden your search horizon for loans
    The cut-offs in credit scores used for evaluating loan applications can vary across lenders. Some lenders set a high cut-off in credit scores while approving loan applications while others may approve loans to those with a lower credit score but at higher interest rates.

    Radhika Binani, Chief Product Officer, Paisabazaar.com says, "Loan applicants with lower credit scores should widen their search to find out lenders offering loans to those with low credit scores. The best way to do so is to visit online financial marketplaces that provide loan offers available from various lenders based on a consumer's credit score, monthly income, job profile, location, etc."

    2. Discuss with your lender
    Pranjal Kamra, CEO, Finology, a Raipur-based fintech firm, said, "If you have a bad CIBIL/credit score due to some genuine financial hardships in the past, then in such case you can directly discuss with your banker with whom you have been associated with for a long time. This may enable you to get better credit terms even with a poor credit score. Also, if there is any improvement in your financial status like a hike in salary or a more secure job, then showing evidence of the same increases your chances of getting your loan application approved."

    3. Opt for secured loans
    Those denied unsecured loans like personal loan and credit card loan or being charged extremely high-interest rates due to their low scores can opt for secured loans. There is lower credit risk for lenders in giving loans backed by adequate collaterals with enough liquidity., Hence, they give less importance to the credit score while approving the application for such secured loans.

    Anuj Kacker, Co-founder, MoneyTap, a Bengaluru-based credit line firm, said that one can go for a mortgage-backed loan such as gold loan, loan against property or loan against securities. "However, choose this only when you need money urgently in case of an emergency. These are secured loans as lenders keep one of these assets as collateral for the repayment of money that he lends to the borrower," Kacker said.

    4. Apply for a joint loan or add a guarantor
    Another way of getting a loan despite a low credit score is by opting for a joint loan. Here, one can apply for a loan by collaborating with someone (spouse or family member) with a good credit score. This increases the chance of getting loans approved as the other member acts as a co-applicant with the borrower who has the low credit score.

    "If you have a low credit score, you can consider including a co-applicant/guarantor to improve your loan eligibility. Adding a co-applicant/guarantor with higher credit score and better credit profiles reduces the credit risk for the lender as the co-applicant/guarantor too becomes liable for loan repayment in case of default by the primary borrower," Binani said.

    5. Take a loan from an NBFC or P2P lending platform
    Since banks conduct strict credit report examinations, which can sometimes also lead to hard enquiries, it can downgrade your credit score. Therefore, you may approach non-banking financial companies (NBFCs) rather than banks as the former have more relaxed policies towards people with poor or no credit scores. However, the catch here is that, these institutions charge much higher interest rates compared to banks.

    (A hard inquiry is an inquiry where you submit a loan or credit card application to the bank and the bank fetches your credit report from the credit bureau to assess your creditworthiness. These enquiries can reduce your credit score by a few points.)

    Kamra said, "The easiest and quickest way to get a loan if you have no or low credit score is the Peer to Peer (P2P) lending platforms. Besides paperless disbursals and flexibility in terms of loan tenure, these platforms also offer competitive interest rates compared to NBFCs."

    6. Go for a smaller loan amount
    If you don't have a good credit score, then you can go for a small loan such as personal loan and repay it regularly to build a good credit score. In this process, one can gradually strengthen one's creditworthiness and eventually go for a bigger loan from a bank or any other financial institution.

    Points to note:
    • If you first clear all your existing debts such as credit card bills, utility bills, and any other loan, if taken earlier, it helps you build a good credit score while also improving the chance of loan approval.
    • Those with existing home loans can enquire with their existing lenders about the availability of top-up home loans in case they need another loan.


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