How to Get NBFC Personal Loan For A Bad Credit in India?

Thinking about applying for a personal loan but worried about a low credit score? While many banks consider a low credit score negativity, NBFCs look at other factors than credit score like employment status and other income sources. This can help you secure a personal loan on favourable terms.

This blog explores common challenges, strategies and steps to apply for a personal loan with bad credit.

Why Are NBFC Personal Loans So Popular?

NBFCs are a popular choice because they offer a lot of flexibility in loan terms. They look at other factors besides just the credit score. They check the borrower’s employment status, income source and other sources of income. Thus, it is possible to get a loan approved from an NBFC even if one has a low credit score.

Additionally, NBFCs require minimal to no documentation, typically an Aadhar card or PAN number along with basic details. They disburse the loan quicker than traditional banks, making them a popular option among individuals seeking instant personal loan.

Personal Loan from an NBFC If I Have a Bad Credit Score?

A credit score between the range of 300 – 500 is considered a bad credit score. Getting a personal loan from an NBFC may be challenging with a bad credit score, but it is not impossible.

Many NBFCs are flexible in terms of loan approval for borrowers with low credit. They may look at other factors like employment status and income source. You may also increase your chances of loan approval by having a co-applicant.

How To Get NBFC Personal Loan for Bad Credit?

It is possible to get approval for an NBFC personal loan even with a low CIBIL score. Here are the steps to follow when you consider applying for a personal loan with bad credit:

Step 1: Review Your Credit Score and Report

Before you apply for a personal loan, check your credit history and credit score. If there are any errors or unauthorized entries in the credit report, report them to the bureau. Resolving such errors can significantly improve your credit score.

Step 2: Choose the Right NBFC for You:

Research and compare various lenders. Look for lenders that offer flexible interest rates and terms even for applicants with low credit. A lot of lenders look for other aspects (employment status, other income sources) if the credit score is low.

Step 3: Gather Necessary Documents

If the borrower has bad credit, the lender may ask for additional documents. Ensure that you have all the required documents ready.

These documents include: 

• Proof of Identity (Aadhar card, PAN card)
• Proof of Address (Utility bills) 
• Income Proof (Salary slips, Bank statement) 
• Employment details 

Step 4: Ensure You Meet the Eligibility Criteria  

Whichever NBFC you apply for, check their loan eligibility criteria. Ensure that you fulfil the criteria, to improve chances of loan approval.   

Step 5: Strengthen Your Application (Optional)  

Build Credit Score: If you have more time, work on building a good credit score before you apply for a personal loan. 

Opt for Secured Loan: Secured loan allows the borrower to pledge their asset as collateral for loan. If you can offer an asset like a car or fixed deposit as collateral, you can opt for a secured loan. 

Co-Applicant: You can additionally, get a guarantor or co-applicant with a steady income and good credit history to sign the loan agreement. This will increase your loan approval chances significantly. 

Step 6: Submit Your Application

Once the eligibility criteria are fulfilled and you have the required documents ready, you can submit your personal loan application online or offline (NBFC branch). 

Step 7: Follow Up and Negotiate (Optional)   

If your application is not approved, you can request or negotiate for a smaller loan amount or a slightly higher interest rate. You may also ask about any other required measures you can take to improve the chances of loan approval.

Also Read: What is NBFC? Types and Difference Between Bank vs NBFC

Common Challenges When Applying for an NBFC Loan with Bad Credit  

There are several challenges that a borrower may face when they apply for an NBFC Loan with bad credit. Here are some common challenges one may face: 

Higher Interest Rates: The NBFCs may charge a higher interest rate to balance the risk with lending money to a borrower with bad credit.  

Lower Loan Amounts: Usually, the loan doesn’t get approved if a borrower with low credit applies for it. In this case, the lender may agree to approve the loan at a lower amount. This is due to the fact that a lower amount poses a lesser risk to the lender than a higher amount.

Short Repayment Tenure: The lender may also offer the loan repayment term for a shorter term. Thus, while the borrower does get the loan amount, they need to figure out a way to repay the loan in a short duration as well.  

Collateral Requirements: The lender may require the borrower to pledge an asset as collateral to get loan approval. This assures the lenders of the certainty that the loan will be repaid. 

High chance of Loan Rejection: There’s a higher chance of loan application rejection when the borrower has bad credit.  

It is important to find strategies to improve loan approval chances.  

4 Ways to Get NBFC Personal Loan for Bad Credit  

While getting approval for a personal loan with bad credit is not easy, there are definitive steps one can take to improve their chances. Here are a few ways:  

Opt for a Lower Loan Amount: Many NBFCs would be willing to approve a personal loan if the amount is low. The lender is more likely to approve the loan if the amount is low. Also, with timely repayments, you get to improve your credit score as well. 

Get a Guarantor or Co-applicant: Getting a person with a good credit history and a stable income source as a co-applicant can improve your chances of loan approval. The NBFCs will consider both you and the co-applicant’s credit score while approving the loan. 

Use a Collateral: The lender is more likely to approve the loan if there is a payback guarantee. Pledging an asset like a car or a mutual fund can improve your chances of loan approval. 

Show Stable Income Score: The lender is more likely to approve the loan if you show a stable income source. You can provide salary slips, bank statements or income tax returns to show a stable stream of income to the lender. 

Also Read: Personal Loan for a CIBIL Score of 550 to 600

Conclusion  

By following the strategies mentioned above, it is possible to get a loan approved from an NBFC while having bad credit. Additionally, it is very important to clear any existing debt and work towards building a good credit score to have a good credit history. This will help you in the future when applying for a new credit or loan.