Bad Credit Score? You Can Still Get a Loan - Authored Article by Kalpana Pandey

Trying to take a loan is an uphill task for most of us in any situation and, coupled with a bad credit score, it promises to be a challenging experience for anyone involved. Weak credit score decreases your chances of getting a loan from a bank or a financial institution because it indicates you as a high-risk borrower, someone who has a higher probability of default on its repayments and can turn the loan into a bad investment for the lender. The assessment is purely based on your credit history and past repayment behavior.

What does a bad credit score mean?
Bad credit history or poor credit score is typically an outcome of poor management of your credit. It could be due to any or multiple of the following reasons:

  • Nonpayments on your loans and credit cards
  • If you have missed your payments on your loans and credit cards
  • Consistent high use of credit card limit
  • Written-off or settled account
  • Too many loan applications in a short time

Poor credit score puts you in the reject list of the lenders and any future loan application is turned down due to the above reason.

So, how to get a loan with a bad credit score?
Don’t lose hope. Poor credit scores don't necessarily mean that you cannot get loans – poor credit score makes it harder and expensive. Few of the options which you could avail are:

Loan Against Assets: You can get loans that are approved by pledging your assets even with a bad credit score. As you mortgage your property or pledge your fixed deposit or shares, the lenders may be flexible in terms of eligibility criteria (even the poor credit score) and sanction the loan that you need. The interest rates may be slightly higher and even the loan amount could be lower because of the poor credit score. However, this is one of the easiest ways through which you can get quick funds for your immediate needs.

Secured Credit Cards: Secured credit cards allow you to help build your credit history and can be obtained even with bad credit. If you have a fixed deposit, you can get a secured credit card. The credit limit is allotted against 70 to 80% value of the fixed deposit. Using your secured credit card regularly and paying back can certainly demonstrate good behavior. However, it may not by itself improve your credit score unless you have cleared your past dues or negative account which were the causes for your poor credit score. This credit card may give you access to emergency funds and will stick with you for the long-term.

Advance Salary: This one sounds tempting!! Getting one’s salary into account gives pleasure, but getting an advance salary, how does that feel? There are few financial services companies that offer half the amount of your monthly salary in advance to meet your short-term cash needs. The process is quick, and the loans are disbursed directly into your bank account after the approval.

P2P Lending: With Peer-to-Peer lending burgeoning in the Indian Market, getting unsecured personal loans is not the daunting task that it used to be. The definition of bad credit in the bank’s dictionary may not be like the one in a peer-to-peer lending platform’s dictionary. P2P platforms might be comfortable evaluating a loan application with a lower credit score. The interest rates applicable may be adjusted for risk. 

Get a Co-Applicant: When you have a poor credit score, you can seek the help of a co-applicant to get a loan. It could be any of your family members. The co-applicant can be the primary applicant whose income and credit history will be considered for the loan. In case of a home loan, the rules might vary for a co-applicant as the banks lay down certain conditions.

Contact Your Current Lender: You can directly go and talk to your current lender with whom you have maintained your account for a long time. You can negotiate with the lender for a better price and better deal. This could considerably reduce your search and processing time. This way you can get a quick loan even with poor credit.

A more relevant question to ask oneself is, “Is it advisable to get a loan with a bad credit score?” There is a possibility you can get a loan even if your credit record is not good, but is it really needed? If you can avoid the loan now or delay it, it is advisable. If you are lucky enough to get a loan, you will be incurring a heavy repayment burden. Instead, if you have poor credit, you can save significant money on your repayment burden by first improving your credit before applying for a loan. Work on your credit report by resolving the underlying causes leading to poor credit score. It shall open more avenues for getting loans, make it easier to get one & have you cheaper too.

Source: Publication: The Hindu Business Line, Chennai| Page No-03| 8th Dec 2019