Cracking India’s Bad Credit Loan Dynamics
Sometimes all that is standing between you and your desired loan is bad credit score. The concept of bad credit loan has emerged as a saviour for individuals grappling with less-than-ideal credit scores.
Understanding of bad credit score:
The credit score is a numerical value between 300 and 900. A higher score increases the likelihood of being eligible for loans from financial institutions. The credit scores are based on the past loans or credit taken by an individual. The credit rating are commonly done by CIBIL and Experian.
The minimum credit score needed to secure a loan in India can vary depending on the type of loan. For instance, a personal loan typically requires CIBIL score ranging from 720-750. It is crucial to recognise that lenders take into consideration factors beyond credit score. Aspects like income, employment track record and debt-to-income ratio have significant influence on their decision.
Typically, credit score ranging from 500 to 649 are considered average rating, whereas 300 to 499 are considered poor rating. These are the ones facing difficulty in securing personal loan, car loan, education loan, etc.
Reasons for Low Credit Score:
- Failure to pay the bill amount
- Non-repayment of loans taken
- Rejection of loan application
- Delays in repayment of previous loans
- No prior loan history
Bad Credit Loan in India:
Bad credit loan, often synonyms with loan for individual having poor or no credit score. It has become an instrument to provide financial relief to those facing challenges in obtain loans from traditional institutions.
Features of bad credit loan:
- High Interest Rates:
Lenders have higher risk in providing loans to poor credit holders, as whether the loan amount will be repaid is dicey. Therefore to mitigate their risk, they charge higher than conventional interest rates.
- Secured And Unsecured Option:
The loan can be either secured or unsecured. In secured loan the individual will have to provide a collateral such as property, jewellery or other assets to the lender. In unsecured loan there is no collateral needed but the interest rates may be higher.
- Short Loan Duration:
The lender may provide shorter duration for repayment of loan to minimize their overall risk associated with borrower’s credit profile.
Eligibility requirement for applying to bad credit loan:
Applicant | Salaried Person/ Pensioner | Self-Employed Entrepreneur/ Professionals |
Age | 21-58 years | 25 to 65 years |
Minimum Income | INR 10,000 to INR 15,000 per month | INR 3,00,000 per year |
Employment Tenure | Minimum one to three years | Minimum one to three years of stable business |
Ways to Increase the chances at Securing Bad Credit Loan:
- Payment of EMIs:
If there has been a rise in income of the applicant the lenders might provide loan despite of low credit score. Therefore, it becomes important to convey to the lenders about increased income and that EMIs can be easily paid may significantly enhance the likelihood of loan approval.
- Pledging a collateral:
Offering collateral enhance the likelihood of obtaining a loan by reducing the lenders risk. Lenders gain confidence in extending a loan because, in the event of defaults, they can sell or auction the collateral to recover the outstanding loan amount.
- Submit your application with a co-applicant:
Opting for a loan with a creditworthy co-applicant increases chances of securing loan even when one of the applicant has bad credit score.
How to select a bad credit loan provider?
If you are in need for financial assistance and are having low credit score it is advisable to explore options carefully and consider a reputable financial institutions or lenders. The terms and conditions, interest rates should be read and understood. Also make sure that you can meet the repayment obligations.
The official website of bad credit loan providers should be visited for accurate and up-to-date information. These institutions should be contacted directly or by consulting financial advisor. Finally, it is important to be cautious of potential scams and fraudulent activities, and only deal with reputable and regulated financial institutions.
Alternative to bad credit loan:
- Overdraft
The banks provide overdraft facilities in current account with 0% interest rate up to specific amount. It is extremely important that the limit is not exceeded as the fees may be quite costly.
- Credit Union
Credit unions provide loans to their members only and the main objective is to serve their members.
- Credit cards
There are specific credit cards available to individual with bad credit score having lower credit limits or higher interest rates. One should always keep in mind that non repayment of amount due can further lower the credit score.
- Payday loans
A payday loan is a short term, unsecured loan granted to assist salaried individuals in addressing immediate cash requirements until their next salary is received. The approved loan amount is less than their salary and can be utilized to cover minor expenses.
- Savings
It is always beneficial to use savings rather than taking a loan and paying high interest rate on borrowings
- Government Budgeting loans
The government offers an interest free budgeting loans to those in urgent need to pay their rents.
- Loans from family and friends
Seeking financial assistance from family and friends can be another option in the time of need. Due to mutual understanding, establishing a reasonable interest rate together and repayment plan can be simplified. While also acknowledging the potential impact on your relationship due to the borrowing.
The financial sector in India is dynamic, with constant efforts in enhancing financial inclusivity. Fintech companies are increasingly playing a vital role in facilitating access to bad credit loans through innovative and technology-driven lending platforms.
Bad credit loans in India represent a multifaceted financial tool that addresses the unique needs of individuals with imperfect credit histories. While these loans come with higher costs, they serve as an important resource for those in need of financial assistance. As the financial landscape continues to evolve, it is essential for borrowers and policymakers alike to navigate the delicate balance between providing access to credit and ensuring responsible lending practices.