How can CIBIL Defaulters Apply for an Personal Loans?

Understanding the Impact of a Low CIBIL Score

A credit score, typically ranging from 300 to 900, is a numerical representation of your creditworthiness. It is calculated based on factors such as:

• Repayment history
• Credit utilization ratio
• Length of credit history
• Types of credit in use
• New credit inquiries

A score below 600 is considered poor and indicates a higher risk to lenders. If you have defaulted on EMIs, missed credit card payments, or over-utilized your credit limit in the past, your score is likely to reflect that.

As a result, you may face:

• Rejection of personal loan applications
• Higher interest rates
• Lower approved loan amounts
• Stricter loan terms

Can You Still Get a Personal Loan If You Have a Low CIBIL Score?

Yes, you can—but it may come with compromises. The good news is that some lenders specialize in high-risk loans, and others may consider compensating factors such as your income, employment stability, or a guarantor.

Let’s look at smart strategies to improve your chances of getting a personal loan with a low CIBIL score.

1. Apply with a Guarantor

One of the most effective ways to secure a personal loan with a poor credit score is to apply with a guarantor or co-applicant.

How It Helps:

• The lender gains confidence knowing a financially sound guarantor is backing you.
• The risk is shared, improving your chances of approval.

Important Note:

• The guarantor must have a high CIBIL score (ideally above 750) and a stable income.
• If you default again, your guarantor’s credit score will also be impacted.

This option works best when your financial situation has improved but your credit history is still catching up.

2. Opt for a Smaller Loan Amount

If your credit score is low, applying for a high loan amount may raise red flags for the lender. Instead, consider requesting a smaller loan.

Why It Works:

• A lower loan amount represents less risk for the lender.
• It shows your intent to rebuild trust by taking manageable credit.

Even a small personal loan (₹30,000 to ₹1,00,000) can help you meet urgent needs while also giving you a chance to improve your credit history through timely repayments.

3. Agree to a Higher Interest Rate

Yes, it may sound like a bitter pill, but it’s often a realistic trade-off.

Reason:

• Lenders charge higher interest rates to offset the increased risk associated with poor credit profiles.
• You may find NBFCs or fintech lenders willing to approve your loan at 18% to 30% interest, depending on your risk level.

Before accepting, evaluate your repayment capacity. A loan with higher interest is manageable if taken for a short tenure and small amount.

4. Show Proof of Strong Income

Even with a low CIBIL score, lenders may be willing to offer you a loan if your current income is high and stable.

Key Indicators Lenders Look For:

• Salary slips or bank statements showing consistent income.
• Low existing debt-to-income (DTI) ratio.
• Recent job promotions or increments.

If you earn ₹50,000 per month or more and have minimal financial obligations, emphasize this in your loan application. Lenders want assurance that you won’t default again.

5. Apply with NBFCs or Digital Lenders

Many traditional banks shy away from applicants with low credit scores. However, NBFCs (Non-Banking Financial Companies) and fintech platforms often have less stringent criteria.

Benefits of NBFCs:

• Faster processing
• Flexible eligibility
• Higher tolerance for poor credit history

Digital lending platforms use alternate data points, such as utility bill payments, bank transactions, and mobile recharges, to assess creditworthiness.

6. Take a Secured Loan Instead

If unsecured personal loans seem out of reach, consider opting for a secured loan, such as:

• Loan against Fixed Deposit (FD)
• Loan against gold
• Loan against property (LAP)
• Loan against securities

Why It Works:

• The collateral reduces the lender’s risk.
• Approval is faster and more certain, even with a low credit score.

Secured loans generally offer lower interest rates and longer repayment tenures.

7. Improve Your Credit Score Before Applying

While quick loans are tempting, working on credit repair can help you secure better terms in the future.

Simple Ways to Rebuild Credit:

• Pay off existing EMIs and dues on time
• Don’t max out your credit cards
• Avoid applying for multiple loans at once
• Review your CIBIL report for errors and dispute them

Even a 6-month window of timely payments can significantly improve your credit score and open doors to better loan options.

8. Avoid Making Multiple Loan Applications at Once

Each loan application results in a hard inquiry on your credit report. Too many inquiries can reduce your score further and signal desperation.

Instead, check your loan eligibility using pre-approved tools or soft checks provided by digital lenders. These don’t affect your CIBIL score and help you shortlist the best offers.

9. Consider Peer-to-Peer (P2P) Lending Platforms

Peer-to-peer lending platforms like Faircent, Lendbox, and i2iFunding offer loans funded by individual investors rather than institutions.

Perks:

• Flexible eligibility norms
• Competitive interest rates (starting from 12%–15%)
• Approval based on alternate credit assessments

P2P loans are ideal for those with moderate income but a poor credit history.

10. Highlight Positive Financial Changes

If you've improved your financial stability since the default—like starting a better-paying job or clearing past dues—highlight this in your application.

Attach a letter of explanation with your application, honestly addressing your previous default and emphasizing your improved circumstances. Many lenders appreciate transparency and sincerity.

There Is Hope Beyond a Low CIBIL Score

While it’s true that having a low CIBIL score or previous loan defaults can complicate your borrowing journey, it’s not the end of the road.

To summarise your loan options as a credit-deficient borrower:

• Use a guarantor or co-applicant
• Start small and build credibility
• Be open to higher interest temporarily
• Showcase current income strength
• Consider NBFCs, P2P, and secured loans

More importantly, work on credit rehabilitation as a long-term solution. Rebuilding your CIBIL score doesn’t happen overnight, but every EMI paid on time is a step forward.

Remember, lenders are not just looking for past records—they also evaluate your future repayment potential.

Stay financially disciplined, and within a few months, not only can you access personal loans more easily, but you can also get them on better terms.

Tips: Always check your CIBIL report regularly, and if you find any discrepancies, raise a dispute with the credit bureau. Sometimes, a low score may not be your fault, but a result of inaccurate reporting.