A low CIBIL score due to loan defaults can significantly limit your access to personal loans. By exploring alternative lenders and strategies, you can still secure financing. You can also explore PayMe’s Credit Assist facility to improve your CIBIL score with expert tips. This guide explores securing a personal loan despite a CIBIL default, highlighting potential solutions and considerations for managing a personal loan for people with bad credit scores.
How to get a personal loan with a CIBIL defaulter status?
Securing a personal loan with a CIBIL defaulter status presents a challenge, but there are still options. Traditional lenders heavily weigh CIBIL scores so approval might be difficult. However, you should consider these strategies to get a personal loan easily:
- Secured Loans: You can explore secured loan options like gold loans, wherein you have to put your gold into the mortgage to get a personal loan.
- Guarantor with a Strong Credit Score: You can find a co-applicant with a high CIBIL score to act as a guarantor. Their strong creditworthiness enhances your application’s appeal.
- Microfinance Institutions (MFIs): MFIs cater to borrowers with limited credit history. While interest rates might be higher, they offer smaller loan amounts for specific purposes.
- Non-Banking Financial Companies (NBFCs): Certain NBFCs might be more flexible with credit scores. However, be prepared for potentially steeper interest rates and stricter repayment terms.
Who falls under the classification of a CIBIL defaulter?
CIBIL defaulters are people who have a bad credit history or have missed their monthly EMIs. Presently, they are categorised into three categories, a detailed insight of which can be checked below:
- Individuals with Missed Loan Payments: If you have missed EMI (Equated Monthly Instalment) payments on a loan (home loan, auto loan, personal loan, etc.) typically over 90 days, it can be reported to CIBIL as a default.
- Individuals with Late Credit Card Payments: Making late payments on your credit card bills can also be reported as a default, especially if the delays are significant (over 180 days).
- Individuals with Written-Off Loans: If a lender has classified your loan as a “write-off” due to non-payment, it will be reflected in your CIBIL report as a default.
Eligibility Criteria for Personal Loans as a CIBIL Defaulter
To apply for a personal loan, an applicant must meet the following criteria:
- Be at least 21 years old.
- Have a minimum income of ₹15,000.
- Hold a stable job or own a business that provides a consistent income.
- Possess a credit score of at least 550, though a score of 630 or higher is preferable.
Document Requirements for CIBIL Defaulters Seeking Loans
Obtaining a loan with a history of credit defaults can be challenging, necessitating the provision of various documents that confirm your identity, income, and place of residence. Below is a list of essential documents needed for those with a credit default history:
| Documents Required for CIBIL Defaulters | |
| Identity Verification | Aadhaar card, Driving Licence, Voter ID card, Passport, PAN card |
| Residence Proof | Aadhaar card, Driving Licence, Voter ID card, Passport, recent Utility Bill (within the last two months), Ration Card |
| Income Proof | Recent Salary Slip, Form 16, Bank Account Statement, Pension/Payment Order Copy, Profit & Loss Statement and Balance Sheet, Income Tax Return from the previous year |
| Proof of business | Appointment Letter, Employment Contract, Labor Identity Card, Official or HR Email ID, Practice Certificate, GST documents, Partnership Deed, Shop Act License, Memorandum & Articles of Association |
How can CIBIL defaulters still get approved for loans?
Securing a loan is very difficult for applicants who are already CIBIL defaulters. However, there are different ways in which you can get your loan application approved. Here are 5 key strategies to consider when applying for a personal loan being a CIBIL defaulter:
- Demonstrate a commitment to responsible credit management. Make timely payments on existing debts and maintain a low credit utilisation ratio on any credit cards you possess.
- Secured loans like Loan Against Fixed Deposit (LAD) or Loan Against Property (LAP) use your fixed deposits or property as collateral. This reduces the risk for lenders, potentially leading to loan approval and better interest rates compared to unsecured options. However, be aware of the risk involved — defaulting could result in the lender seizing your collateral.
- Having a guarantor with a strong credit history co-sign your loan application significantly improves your chances of approval. The guarantor essentially becomes a safety net for the lender, taking on repayment responsibility if you default. This approach requires a trustworthy guarantor willing to co-sign, so choose carefully.
- While traditional banks might be hesitant, some online lenders cater to borrowers with less-than-perfect credit scores. They may have alternative credit assessment methods beyond just CIBIL scores. However, check out their terms, and fees thoroughly to avoid any mishap later.
- When applying for a loan, present a strong case that showcases your financial stability. Include documents like income proof, employment details, and proof of assets to gain the trust of the lender.
Loan Options Available to CIBIL Defaulters
Secured Loan:
Secured loans offer a lifeline by using an asset as collateral. In this, you pledge a fixed deposit (LAD) or property (LAP) to the lender, essentially offering them security in case of default. This lower risk for the lender often translates into attractive interest rates and potentially higher loan amounts compared to unsecured options. However, defaulting on this loan can lead to the lender seizing your collateral.
Loan Backed by Guarantor
This option leverages the creditworthiness of another person. You find a guarantor, typically a close friend or family member with a strong credit history, to co-sign the loan application. The guarantor essentially becomes a safety net for the lender. If you default on the loan, the guarantor becomes liable for repayment. While this can significantly improve your chances of loan approval and potentially secure better terms, there are drawbacks.
Online Lenders
The rise of online lending platforms has opened doors for borrowers with less-than-perfect credit. This can lead to higher approval rates compared to traditional banks. However, be cautious of the interest rates, which might be significantly higher than what traditional lenders offer. Before applying, it is crucial to evaluate the lender’s reputation, terms, and fees to avoid any issues later.
Loan Against PF
A loan against PF is a great option as it allows you to borrow against a portion of your contributions to the Employee Provident Fund (PF). This offers a unique advantage: attractive interest rates compared to other options and a relatively easy approval process. However, the loan amount is limited by your PF corpus and might not be suitable for immediate needs due to processing timelines.
Tips for CIBIL Defaulters Seeking Personal Loans
If you are going for a personal loan but do not have a good CIBIL score or fall under the CIBIL defaulter category, then these tips should be followed:
- Before applying for a loan, obtain a copy of your credit report and examine it for any errors. You can raise concerns if you find any inaccuracies you find, as these can negatively impact your score
- If you have any existing credit cards, ensure you make timely payments and maintain a low credit utilisation ratio (outstanding balance divided by credit limit)
- You can explore secured loan options like Loan Against Fixed Deposit (LAD) or Loan Against Property (LAP). These loans use your fixed deposits or property as collateral, making them less risky options for lenders.
- Debt to Income ratio compares your monthly debt obligations to your gross monthly income. Lower this ratio by paying down existing debts before applying for a personal loan. This demonstrates a stronger financial standing and ability to manage additional debt.
- Having a co-applicant with a good credit history can significantly improve your loan application’s chances of approval. The co-applicant essentially guarantees repayment if you default, making the loan more attractive to lenders.
| Also, read:
● How to check and remove your name from CIBIL’s Defaulter List? ● What is the minimum CIBIL score required for a personal loan? ● How to increase CIBIL/Credit Score? (13 smart ways to improve CIBIL score) |
What other options are available for CIBIL defaulters to raise funds?
Loan against Fixed Deposit (LAD)
If you have existing fixed deposits (FDs) with a bank, you can leverage them to secure a loan. The bank will offer a loan amount up to a certain percentage of your FD’s value. This option is attractive because repayment defaults will not affect your CIBIL score as the FD serves as collateral.
- Loan against Property (LAP):
Similar to LAD, you can use property you own (land, house) as collateral to secure a loan. This option typically offers larger loan amounts but comes with a higher risk. If you default on the loan, the lender can seize your property. - Microfinance Institutions (MFIs)
MFIs cater to individuals who might not qualify for traditional bank loans. Popular MFIs like PayMe offer smaller loan amounts with shorter repayment terms and higher interest rates. However, you should evaluate the interest rates and fees offered by MFIs before borrowing. - Credit Card
If you own a credit card with a good repayment history then you will be eligible for a loan even if you are a CIBIL defaulter. However, this loan will be applicable only for short terms. However, you should be aware, that you have to pay high interest rates.
Legal Implications of Being a CIBIL Defaulter
Here are a few legal implications that apply to CIBIL defaulters:
- Being a CIBIL defaulter means that you will need help in securing loans in the future. This also means that you will have a low score, which indirectly means that you are a high-risk profile for the lenders. This can lead to loan rejections or approvals with higher interest rates and stricter terms
- If you have existing credit cards, a default can lead to a decrease in your credit limit. This restricts your spending power and makes managing your finances more challenging
- Lenders are also allowed to initiate legal action to recover defaulted amounts from the CIBIL defaulters. This may involve sending you legal notices, filing lawsuits, or initiating debt recovery proceedings
FAQs
Ques: Can I Get a Loan Despite Having a CIBIL Default?
Ans: Yes, you can look up several options like a loan against PF, a loan backed by the guarantor or against gold if you have a CIBIL default.
Ques: How Does Defaulting on Payments Affect My Credit Score?
Ans: Defaulting on payments affects the credit score adversely and the applicant might not get a lot of loan opportunities.
Ques: Will Settling a Defaulted Amount Help Improve My Credit Score?
Ans: Yes, settling a default amount helps to improve their credit score.
Ques: What Are the Consequences of Ignoring a CIBIL Default?
Ans: You will not be considered a good applicant to get a personal loan by the lenders or may be offered a high-interest rate.
Ques: Should I Consider Credit Repair Services to Fix My Credit Score?
Ans: Yes, you can consider the PayMe Credit Assist service to repair your CIBIL score. PayMe’s Credit Assist facility also offers personalised tips to improve the same.
Also, read:
- How do I contact CIBIL for Consumer Complaints? – CIBIL Customer Care
