Getting a loan sanctioned is an uphill task for most of us in any situation — coupled with a bad credit score, it promises to be a challenging experience. A weak credit score decreases the chances of getting a loan from a bank or a financial institution because it depicts you as a high-risk borrower, someone who has a higher probability of defaulting on repayments, thus turning the loan into a bad investment for the lender. The assessment is purely based on your credit history and past repayment behaviour.

A bad credit score

Bad credit history or poor credit score is typically an outcome of poor management of your credit. It could be due to any or multiples of the following reasons:

• Missed payments or non-payments on loans and credit cards

• Consistent high use of credit-card limit

• Written-off or settled account

• Too many loan applications within a short time

Poor credit score puts you in the reject list of the lenders, and a loan application is turned down due to the above reason. So, how can you get a loan with a bad credit score?

Don’t lose hope. Poor credit scores don’t necessarily mean that you cannot get loans — they make it harder and expensive. Some of the options which you could use are:

Loan against assets

Even with a bad credit score, you can get loans by pledging your assets. As you mortgage your property or pledge your fixed deposit or shares, the lender 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 with 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 70-80 per cent value of the fixed deposit.

Using your secured credit card regularly and paying back promptly can certainly demonstrate good behaviour.

However, it may not, by itself, improve your credit score, unless you have cleared your past dues or negative accounts which were the causes of your poor credit score.

This credit card may give you access to emergency funds, and will stick with you for long term.

Advance salary

This one sounds tempting! Getting salary into account gives pleasure, but getting an advance salary, how does that feel? There are some 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 (P2P) lending flourishing in the Indian market, getting unsecured personal loans is no more the daunting task that it used to be. The definition of bad credit in a bank’s dictionary may not be like the one in a P2P lending platform’s.

These platforms can be comfortable evaluating a loan application with 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 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 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 that you can get a loan even if your credit record is not good, but is it really needed?

If you can avoid the loan or delay it, that 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 a significant amount of 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, making it easier and cheaper, too.

The writer is CEO,CRIF High Mark

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