Bad Credit Personal Loans

When Should You Apply for a Bad Credit Loan?

Bad credit loans should be availed only when necessary, which can be when you are in any one of the below-given situations:

1. Your loan application has been rejected by many lenders due to your low credit rating.
2. You have defaulted on your credit card payments.
3. You have no other way to manage your current debts.
4. Your financial situation has improved and you can afford to repay a loan to repair your credit score.

Things to Consider Before Applying for a Bad Credit Loan

Before you decide to avail a bad credit loan, ensure that you bear the below-given points in mind:

1. Do a proper research and explore the benefits offered by various lenders. Choose a lender that offers lower interest rates.
2. Before you apply for a bad credit loan, check your eligibility to ensure that your loan application does not get rejected as that may damage your credit score further.
3. Go through the terms and conditions offered on bad credit loans thoroughly so that there are no surprises later.
4. Evaluate your repayment capacity before you decide to apply for a bad credit loan.

How to Increase Your Chances of Getting a Bad Credit Loan

1. Prove that you can repay the EMIs - Despite your low credit score, lenders may offer you a loan if there has been an increase in your earnings. Hence, if you can communicate to the lender that your earnings have increased and you can afford to pay the EMIs, there are high chances of them offering you a loan.
2. Provide collateral - Providing collateral increase your chances to secure a loan as the risk associated with lending to you decreases. Lenders feel confident to offer you a loan as in the case of defaults, they can sell/auction the collateral to recover the loan outstanding amount.
3. Apply with a co-applicant - When you apply for a loan with a co-applicant who is creditworthy, your eligibility to secure a loan gets enhanced. So, when you have a low credit score and you wish to secure a bad credit loan, applying with a co-applicant is a good idea.

Eligibility Criteria for Bad Credit Personal Loans

The criteria to apply for a bad credit loan are given below: 

1. Age requirement: Applicants should fall within the age bracket of 21 to 57 years. 
2. Minimum income: Applicants must earn a minimum income of Rs. 13,500 or more per month. 
3. Direct income credit: Income should be directly credited to the applicant's bank account. 
4. Credit score criteria: A minimum CIBIL score of 650 or a minimum Experian score of 650 is required. 

Documents Needed for Bad Credit Loan Application

You will need to submit the following documents to apply for a bad credit loan: 

1. Proof of identity such as Aadhar, passport, driving license, etc. 
2. Copy of rental agreement if you reside in a rented house   

1. Passport size photographs 
2. PAN Card  
3. Proof of address such as utility bills, Aadhaar, passport, voter id, passport, etc. 
4. Proof of income: 

1. For Salaried Applicants 

1. Last 3 months’ bank statements in PDF format showing salary credits 
2. Last 3 months' salary slips with important details 

1. For Self-Employed Applicants 

1. Last 3 months’ bank statements in PDF format 

How to Apply for a Bad Credit Loan 

Given below are the steps to apply for a bad credit loan: 

Step 1 - Visit the lender’s website or download the app.  

Step 2 - Input all required details, and you will be informed of your eligibility.  

Step 3 - Choose your preferred loan amount and repayment term based on your eligibility. 

Step 4 - Upload all necessary documents online.  

Step 5 - Once your documents are verified and the loan agreement is submitted, the loan amount will be credited to your bank account within 24 hours. 

Bad Credit Loans: Secured vs Unsecured Options

Secured Loans:

If you have a house or an expensive car or property or any other significant asset, then you can use it as a collateral. This will in turn make you eligible for a secured loan as an option. Secured loans are given at lower rates than the personal loans. Sometimes, when you need a huge amount, this will be the only option that you will be left with. But always meet your repayments as you might lose out on the asset you kept as a collateral.

If you have had difficulty making payments on your loans never keep your home as a collateral. Take different factors into consideration before you turn your Unsecured Loans to secured loan especially if you have had a bad credit history. The rates may seem attractive, but if you miss making payments, you might lose out on the asset you kept as a collateral.

Unsecured loans:

Unsecured loans are given to the borrower based on their creditworthiness. You as a borrower will not have to have a collateral. You must have a high credit score to avail an unsecured loan. The loan is not guaranteed by any asset or property. The interest on the loan is fixed and due at the end of a specific time period.

To avail an unsecured loan, maintain a high credit score. You must make all the payments and repayments on time and not default even once.

Which Lenders offer Bad Credit Loans?

If you have a low credit score, pledging a collateral can help you get a good deal on loans. Providing a collateral lowers the risk associated with lending to you and hence, you can negotiate with the lenders to offer you lower interest rates. Such loans that are given against collateral/security are known as secured loans.

However, if you do not have any collateral to pledge and are looking for unsecured loans, you may be eligible for a loan if your monthly earnings are on a higher side and you work for a reputable firm. In such cases, banks will charge you higher interest rates and there are also chances of you getting lower loan amounts. For instance, if under normal circumstances, your loan amount eligibility is about 80% to 90%, it will be 65% to 70% because of your poor credit score. There are also chances that you will be offered shorter repayment tenures as banks will look at collecting the loan amount as soon as possible.

Apart from banks, there are two other options that you can try if you have a poor credit score and wish to avail a personal loan -

1. Non-Banking Financial Companies (NBFCs) - There are many NBFCs that will offer you a personal loan despite your low credit score but may charge a slightly higher rate of interest. Usually, NBFCs are more flexible than banks when it comes to credit scores. Some NBFCs have sanctioned loans for credit scores that are as low as 360.
2. Peer-to-Peer Lending (P2P) - There are some lending websites, called P2P websites, that offer loans of up to Rs.5 lakh with tenures ranging between 12 months and 60 months to people with low credit score.

Are there any Alternatives to Bad Credit Loans?

Yes, there are limited alternatives that you can consider before opting for a bad credit loan. These options are:

• Speaking to your current financial provider to offer you a tailored loan considering your circumstances. The current financial provider may be able to help you out in this regard than you going to a new provider for a loan.
• You can get an overdraft on your current account at 0% interest rate for a certain amount. Never cross your limit on the overdraft as the unarranged overdraft fee will turn out be very expensive.
• Credit unions that are community operated can offer a real alternative to banks to those going through financial difficulty. You need to be a member of the credit union to avail the loan. These organisations are supportive and their main intention is to serve their members.
• Credit cards are another option that is available to those with a bad credit history. There are dedicated cards for the people with bad credit ratings. Though they may have lower credit limits or with higher interest rates. Also remember a failed application will damage your credit card further.
• There are payday loans. But it is advisable not to take this loan.
• Use your own savings for as long as you can. It is better to have used your saving than to pay the high interest that are being charged on loans.
• The government also offers interest-free budgeting loans to those who can't afford their rent. But those with urgent requirements only will receive the loan.
• Turn to your family and friends for a loan. You can work out a mutually beneficial deal out and they will be much more understanding than any financial body. You can agree on a feasible interest. Be clear as to how you will make the repayment as there is a good chance that the relationship may be affected due to this. Agree on a certain time frame and commit to it.

Whatever the problems are, stay away from the loan sharks. Consult with your existing lender and work out a deal that will avoid you from defaulting your payments and saving you from a bad credit history. The lender will always assist you and advise you how to go about your current financial status.

A good credit score can help you secure lower interest rates on loans and credit cards.

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