How to Get a Personal Loan with a Low CIBIL Score?

In the universe of personal finance, the CIBIL score is one of the seven measures that determine your creditworthiness. This is a three-digit number which is between 300 and 900 and it gives a brief history of your credit and greatly determines your chances of getting a personal loan. Though a CIBIL score above 750 is beneficial in getting the best loan deals, a low score is not easy to manage. But if you are in this position, don’t despair.

Let us understand how to get a personal loan with a low CIBIL score, what documentation is required for a personal loan with low CIBIL and how you can work on it to make yourself more credit-worthy.

The top-tier traditional banks in India usually prefer 750. If you fall below this threshold, the lending environment changes significantly. For instance, 

• 750 and above (Excellent): Easy approvals and the lowest interest rates.
• 700 to 749 (Good): Most unsecured loans are approved easily.
• 650 to 699 (Fair): Most lenders approve the loan with higher interest rates and stricter terms.
• Below 650 (Low): The traditional banks mostly reject the unsecured loan applications with this score.
• Below 550 (Very Low): RBI-regulated specialized NBFCs or instant lending apps can approve short-term loans. If you need a large amount, secured loan options will be a good choice for you. 

If traditional banks have turned you down, you still have viable paths to secure a personal loan with low cibil scores. For instance, 

1. Apply with a Co-Applicant or Guarantor

If you have a spouse, parent, or sibling with a strong credit score (above 750) and a steady income, apply jointly. 

Warning: If you miss an EMI, your co-applicant's credit score will drop, and they will be legally responsible for clearing the debt.

2. Opt for a Secured Loan

Unsecured loans (like standard personal loans) rely entirely on your credit history. If your score is low, you can take a loan against fixed deposits (FDs), gold, mutual funds, or an insurance policy. 

3. Ask for a Smaller Loan Amount

A large loan request from a low-score applicant put the lenders in a dilemma. They approve smaller amounts quickly with minimal documentation. Clearing smaller debt also helps you   rebuild a good credit score.

4. Prove a Stable and High Income

Some Non-Banking Financial Companies (NBFCs) weigh your current income and job stability more than past credit mistakes. If you have been working at a reputed company for a long time and have a strong monthly cash flow, provide your latest salary slips and bank statements. Consistent income can sometimes override a poor credit history.

5. Check Your Credit Report for Errors

Sometimes, a low CIBIL score isn't your fault. A bank might have failed to update a closed loan, or an incorrect default might be dragging your score down. Download your free annual credit report and dispute any inaccuracies directly with the credit bureau. Fixing a glitch can instantly boost your score.

Read to know more about - how to raise a CIBIL dispute?

However, loans for low CIBIL scores usually come with a catch: higher interest rates. Because lenders view you as a higher risk, they compensate by charging a premium. So, you must consider the interest rate using EMI calculator to see how a low credit score penalty impacts the total amount you need to pay back.

When applying for a personal loan with a low CIBIL score, you'll need to provide comprehensive documentation to support your application:

• Proof of identity: Any other identification card which is issued by the government, including but not limited to passport, driving license or aadhaar card.
• Proof of income: The final paycheck, bank or other statements that the income was being deposited on a regular basis, or copies of the independent contractor’s income tax returns.
• Proof of address: Any document that shows your current address, such as any of the utility bills, rental agreement or any other legal document.
• CIBIL score report: A photocopy of your latest CIBIL score report. That means it is mandatory for anyone seeking credit from a potential lender to tell the truth about his/her credit status.

Read to know more about - What Documents Are Actually Needed for Digital Loans?

How do personal loan eligibility criteria vary with low CIBIL scores? Lenders typically adjust their eligibility criteria for applicants with low CIBIL scores:

• Higher interest rates: Thus, to cover the increased risk, the lenders might start demanding higher interest rates on the given loans. Expect to pay a few percentage points higher than the conventional interest rates.
• Stricter eligibility criteria: You might be asked to earn more cash or some other security in order to secure the loan. Some of the lenders may need a co-applicant or guarantor.
• Limited loan amounts: Some of the creditors may be restricted in the volume they can allow the borrowers. This amount is traditionally below the amounts extended to people that have a higher credit rating.

When opting for a personal loan for salaried one, just borrow the required amount, which you shall be able to repay back without much strain. Set down a payment plan to facilitate early repayment of the loans.

Read to know more about - How CIBIL Score Affects Loan Eligibility.

It is always wise to start with the process of applying for a loan by enhancing your CIBIL score. Here are some effective strategies for how to improve CIBIL Score for a personal loan application:

• Check your credit report: The first step is to get yourself a credit report and then read through it in order to check for errors. Any inaccuracies that you come across can be detrimental to your score, and therefore, you should challenge any of them with the credit bureau.
• Pay bills on time: Other terms and conditions are also important to follow such as making the payments in time so that credit score is good. It is preferable to set reminders for the fees or make them to ensure you are always reminded of the due dates.
• Reduce debt: On how to pay off the debts one should: Pay special attention to the debts which are likely to incur high interests. You can use either of the two debt repayment methods which include the debt snowball or avalanche method.
• Limit new credit accounts: As much as it may be enticing to apply for new credit cards, do not do so. This is because, while many new accounts are sometimes created, these can also lower the average age of the accounts, therefore the score.
• Increase credit utilization: Spread your expenses across a portion of your credit limit, while keeping ‘‘credit use’‘ below 30% with regard to credit cards. This helps to convince the lenders that one is credit worthy and in a position to handle credit facilities.

Read to know more about - How a Short-Term Loan Can Improve Your CIBIL Score?

For an instant loan with low credit score, RBI-related instant loan apps and digital platforms are your best bet. These platforms consider alternative data points, like your monthly income, spending habits, and employment status rather than relying solely on traditional credit bureaus.

mPokket makes digital lending easier for self-employed individuals, low-income salaried professionals, working students, and even for those who don't have a minimal CIBIL history. They process applications with minimal documentation, rely on their own strict but fair proprietary credit checks, and can approve funds even if you completely lack a CIBIL history.
 

1. What's the lowest CIBIL score that banks accept for a personal loan?
For unsecured personal loans, the traditional banks typically prefer a minimum CIBIL score of 750. Sometimes, they approve those with 650 scores but charge higher interest rates. For anything lower, apply to the digital lending apps that offer specialized instant loan for low cibil score.

2. Will applying for a loan with low CIBIL hurt my score further?
Yes, it can. Every time you apply for a loan, it triggers a hard inquiry on your credit report. So, applying to multiple lenders in a short time can temporarily lower your CIBIL score even further.

3. How can I improve my chances of loan approval despite a low CIBIL score?
The digital lenders easily provide approval to the applicants who add a high-score co-applicant, request a smaller loan amount, and provide a stable, high income proof.