Alternative Lending Options: Personal Loans for Borrowers with Lower Credit Scores

When looking to borrow money, you have multiple loans like personal, home, and auto loans, available to you. It is essential that you check the eligibility criteria for getting these loans. One thing most of the common requirements to get such loans is a great credit score.

Credit scores are computed after taking your repayment history into account. It is a representation of your creditworthiness, which is evaluated by the lender to be sure that you won’t default on your payments. Thus, it is important to regularly check your CIBIL scores.

However, there are multiple reasons why your credit score may have taken a hit. So does that mean you cannot borrow anymore? No. Let us discuss some lending options for borrowers with lower credit scores.

1. Secured Loans

The minimum credit score required for a personal loan is about 700. And if you want to get a higher amount, at better interest rates, the score needs to be much higher. These scores indicate your repayment ability which assures the lender that you will pay back the amount borrowed with interest. If this score is low, you can pledge your assets as collateral and get a loan instead.

In case you default on the loan, the lender can take over the asset or liquify it to receive the payment due. This lowers the risk involved for the lender making it easier for you to get a loan. You can get a credit against your FDs, property, gold and much more. Additionally, these credits usually have a lower interest rate and tenure compared to unsecured loans.

2. Payday Loans

These loans are a handy tool for salaried individuals to opt for. Payday Loans are short-term unsecured loans that are offered to people to meet their urgent needs until their next salary gets credited to their bank account.

The amount sanctioned under these must be lower than your monthly salary. This money is usually used to meet urgent expenses like utility bills and rent payments. These are not suitable for people looking to borrow large amounts.

3. Peer-to-Peer Lending

If you are looking for a small personal loan of up to ₹5 Lakhs, peer-to-peer lending might be a great option for you. Peer-to-peer lending websites match prospective lenders and buyers to facilitate a loan. The loan tenure and the interest rates charged are determined by both parties with a mutual consensus.

Such websites are monitored and regulated by the Reserve Bank of India. This completely ensures the security of your funding. Here, the lender may check your CIBIL prior to making an offer, which you can counter, allowing you space to negotiate. This is a great way of making sure that you get the amount you need at favourable terms, despite having a bad credit score.

4. Loans From NBFCs

When you approach a bank to get a loan, they will most likely check whether you have the minimum credit score required for a personal loan. A final decision will be made on the basis of this score. However, NBFCs offer more flexibility in eligibility and loan terms.

If you have a credit score of about 650 or so, the NBFC might consider giving you a loan if you meet the rest of the requirements. While the interest rate offered will be slightly higher, they will allow you to borrow the needed amount if you can prove your repayment ability. This can be done with a stable employment history and a good monthly income.

5. Overdraft Facility

When running a business, financing all the expenses can be a task, especially if you are already under a lot of debt. You might even need money to repay some of these existing debts as your business notes a slowdown in the off-season. Taking more credit is getting difficult with your high debt-to-income ratio and low credit score. Well, what do you do?

Apply for the overdraft facility available to current account holders. If the money in your business account is not sufficient, you can withdraw more than the balance from a current account with this facility. This allows you to meet expenses like office rent or providing salaries to your employees. Some financial institutions also offer this service to salary account holders.

6. Get a Guarantor

More than one person is allowed to apply for a single loan. Use this to your advantage by getting a guarantor. This can help negate the chances of your loan application being rejected as your co-signer’s credit score will also be taken into account.

For example, let us assume that you have a poor credit score of 600. In this case, if you were to apply for a loan yourself, you would probably be rejected for not meeting the minimum credit score for a personal loan. However, if your guarantor has a good score of about 800, you are more likely to get the loan. This is because the co-signer’s creditworthiness is also accounted for when determining your eligibility to get the loan.

Make sure to regularly check your CIBIL score and make timely credit card bill and loan EMI payments to have access to a variety of borrowing options. However, if due to some reason, your credit score is not up to par, make use of the different ways of getting a credit discussed here. Well, what are you waiting for? Get started now!