Credit Score has become a part and parcel of the credit life of any individual. And by credit score, we mean a good credit score that portrays that you are a creditworthy borrower to a lender. However, it is possible that we all commit mistakes while handling credit and as a result, might have ended with a bad credit score.
However, bad your credit score may be, the saving grace is that it can be improved over time with persistent efforts on being responsible with credit. But it takes its own time for your efforts to show results. And at the same time, the need for credit could also arise at any time. But with a bad credit score, your options become quite restricted.
But do not worry, we at CreditMantri are always at your service and through this article of ours, we would like to let you know about the various options for credit that might be still open for those individuals with bad credit score. However, as a word of caution, we would like to inform you that though these loans are available, the final decision to approve or reject the loan will rest with your lender.
7 Best Options For Loans For Individuals With Bad Credit Score
# 1. Loan against a Fixed Deposit
Fixed Deposits are one of the safest and rather popular avenue for investment for many of the Indians. When faced with a need for credit, individuals do not like to dissolve or break the Fixed Deposit. At this point, a loan which can come against the security of that Fixed Deposit may prove to be a real boon.
A loan can be availed against the security of this Fixed Deposit. An amount of up to 80% of your FD amount may be sanctioned. An interest of a percentage or 2 higher than your FD interest rate is generally charged against this loan. As the loan is against a secured asset, the necessity for a good credit score is done away with. Another important point of advantage here is that the FD continues to earn the normal rate of interest. However, your FD cannot be broken or encashed before you repay the loan.
#2. Loan against Gold
We Indians are fond of gold and we are estimated to have around 23000 tonnes of gold held in the country, mostly in the form of jewelry, coins or bars. You would be surprised to know that in case of a bad credit score, gold loan can come to your rescue.
As with a loan against an FD, here you pledge your gold (in any acceptable physical form) and draw a loan against the security of the loan. A loan to value ratio of anywhere between 70-85% is allowed depending on the criteria as decided by the lender. The loan carries a rate of interest of around 10%.
The best thing here - the gold is held securely in the safes of the lender at no cost to you. So gold loans comes across as a good way of putting one of the illiquid investment like gold to use.
Additional Reading: Good loans for bad credit
#3. Personal Loans From NBFCs/ Cooperative Societies
With a bad credit score, traditional banks may not be inclined to lend to you. However, you may still have some luck with other lenders like lesser known Non-Banking Financial Institutions or Cooperative Banks who may be ready to lend to you. You might want to try with the bank where you have your income/ salary account.
If the amount required is very small and you have been maintaining good balances in your account, the bank may be ready to lend to you. However, with a bad credit score, you cannot expect to get personal loans at competitive rates of interest. The loans from any of these lenders will surely come at a higher rate of interest. However, if you show promptness in payment of your loan, you may see your credit score move upwards.
Additional Reading: How to get personal loan for bad credit?
#4. Loan against Property
The loans we suggested earlier work for smaller amounts of money. However, what if you have a bad credit score and are in need of a bigger amount of credit for purposes like further education of a sibling or child, desire to start a business or buy a property. All these are big-ticket loans which are not sanctioned without a good credit score.
In those cases, a loan against property that you hold in your name can be availed. The loan to value ratio for these loans are much lower than that of the other secured loans as discussed above due to the complications involved in the real estate market. Also, the documentation required for this kind of a loan is on the higher end.
#5. Payday Loans
Quite often, the requirement for credit is just towards the end of the month before your salary gets credited into your account. The last few days of the month are tougher especially for those new to the workforce.
To help individuals in need of cash just before the salaries are paid, there are many fintech companies who have introduced Payday Loans. Any amount commensurate with your salary may be drawn as a loan at quite low rates of interest. These loans are also short in nature and can be repaid in a matter of few days or as soon as the salary gets credited.
#6. Personal Loans from Fintech Lenders
There are a lot of individuals in need of credit but may be denied credit due to low credit score or even no credit score. Sensing the requirement of these individuals, there are many fintech companies that have forayed into the lending space. These firms do not decide the eligibility criteria based on credit scores, but instead use their own data mined from social media profiles and other such linked accounts to come up with their own loan eligibility criteria for lending.
The entire process of application to disbursement happens online, either on their websites or on apps. The need for documentation is also minimal. These loans can range anywhere from a few days to a year.
#7. Credit Builder Loans
We understand that sometimes during periods of low credit score, all you need is some handholding and guiding towards a good credit score, which is why CreditMantri has entered into partnership with Shriram City Union Finance to introduce a special credit builder loan. This loan is aimed at individuals who are looking into improving or starting off the journey towards a good credit score.
Through this product, we help customers get a loan and at the same time build their credit score and history. The loan application process has the added advantage of minimal documentation.
You could consider any of the loans listed above for your credit needs. In addition, you could also contact us for Credit Improvement Service wherein we will patiently guide you through the credit building exercise and see that you have a good credit score at the earliest.