Which is the best loan for a low credit score?

May 18, 2021

A credit score provides lenders and financial institutions with an understanding of a borrower’s financial standing and history. This helps them to decide if individuals are reliable and deserving of credit. The scores are calculated by different credit bureaus who generate detailed reports based on income, timely payments, and more.

In India, there are several bureaus with their own credit scores. But the most commonly accepted one is the CIBIL. This report uses an individual's payment and credit history to build a 3-digit score from 300 and 900. However, individuals with no credit history will have a score of -1, and 0 for those with a credit history of fewer than 6 months. A score ranging between 700 and 900 is usually considered good and is crucial to avail a loan. It can be very difficult to find low credit score loans if your CIBIL score falls below 700. Building a CIBIL score takes a minimum of a year and can stretch to 3 years to achieve a good range.

CIBIL score range

Rating for loan approval

-1 to 650

Extremely unlikely

650 - 700

Low

700-900

Very high

CIBIL score for loans

Unsecured loans like credit cards and personal loans require a good credit score, usually a minimum of 650. Since there is no security or collateral, lenders need proof that the borrower will be able to pay a loan back. And since late payments, defaults on payments, and multiple loans reflect in your score, the CIBIL score informs lenders whether or not you're a trustworthy candidate for a loan sanction.

Additionally, a credit score reflects more than a borrower’s eligibility claim. Even if a loan applicant falls within the ideal range, a low score in the range can impact two important loan factors, namely the interest rate and the final loan amount. If the credit score is closer to the minimum bracket, the interest rates may be higher and the loan amount lower than what would be offered to a borrower with a score closer to 900.

Get a loan with low credit score

While unsecured loans always require an applicant to have a good credit score, a secured loan that uses an asset as collateral may not. In fact, a secured loan may not even consider the applicant’s credit score as a criterion for loan eligibility.

NBFCs

A Non-Banking Financial Company (NBFC) offers loans that have faster processing and easy procedures, which are few of the many reasons why people choose NBFCs over banks for a loan. Lending is more lenient as well since these institutions fall under the rules and regulations of the Companies Act. This allows borrowers to avail personal loans with low credit scores. NBFCs also offer higher loan-to-value ratio than banks in the case of secured loans, some as high as 75% in the case of gold loans. Certain NBFCs can charge higher interest rates than the market rate, so it's important to do your research and compare interest rates before choosing one.

Unsecured loans

Unsecured loan though rely heavily on credit score and profile, it is possible to get a loan without having to pledge collateral/property while having a low credit score. Credit cards, early salary loans, guarantor loans, co-borrower loans and getting an overdraft are some of the ways in which you can secure credit.

  • Guarantor loans - Banking institutions may allow you to get a loan with low credit score if you have a guarantor to back up and co-sign your loan claim. By signing the agreement, the guarantor agrees to repay the outstanding loan amount in the event that the borrower defaults on the repayment.
  • Co-borrower loans - This type of loan is one in which two individuals are equally responsible and liable for the repayment. Borrowers may tend to apply for a joint loan because the chances of credit are higher. However, these loans can be risky. If one of the applicants defaults on the repayment for any reason, the other applicant must complete the total payment.

Secured loans

Secured loans such as gold loans, mortgages, and auto loans offer collateral as security, which makes lenders more likely to offer borrowers personal loans with low credit scores. This applies to both banks and NBFCs. Interest rates also tend to be lower than unsecured loans, but this varies based on the asset being offered as collateral and its value.

  • Gold loan - Gold loans are a perfect example of secured loans where gold is pledged as collateral for the loan amount. This type of loan has a high Loan-to-Value ratio as the gold is a valuable property. The interest rate on this also low compared to personal loans for a short, yet flexible tenure.

Here is a list of low credit score loans that can be availed with a table to illustrate the differences in interest rates.

Type of Loan

Average interest rate (annual)

NBFC

Higher than the market rate at 11.25% - 17.85%

Mortgage

8.75% - 13.35%

Gold loan

9.70% - 29%

Auto loan

Can be as low as 5.75%

Guarantor loan

15%

Joint loan

Average at 9.5%

Even with the availability of these low credit score loans, building a CIBIL score can take years. Moreover, not everyone can afford to take a mortgage or offer a valuable asset as collateral. Running the risk of losing one’s home or vehicle can also leave borrowers exposed to the possibility of drastic lifestyle changes and increasing debts.


Rupeek gold loans

Rupeek is an online gold loan company that offers affordable gold loan solutions, even to borrowers with low credit scores. With Rupeek, you can avail a loan even without any credit score, and can still enjoy all our unique benefits. These include loans with the lowest interest rates in the market, high LTV, flexible repayment schemes, and high-grade security for your ornaments.

Rupeek’s gold loans are the most affordable low credit score loans starting at 0.89% per month and can even enhance your credit by adding to your credit mix. This can positively impact your CIBIL score based on the guidelines provided by TransUnion CIBIL Limited. Rupeek’s repayment tenures are flexible and range from 6 to 36 months, allowing borrowers to choose a scheme convenient to them.

With fast processing, high loan amounts, and relaxed eligibility, Rupeek guarantees your loan experience will be smooth-sailing to the very end.

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