Personal Loans Bad Credit History
A credit history is a report on the past loans that a person takes. It depends on various factors like amount of loan, amount of credit left for repayment and number of times borrower has defaulted in repayment.
One gets a personal loan bad credit history due to one or more of the following reasons:
- When the borrower defaults in making any of the repayments
- When a person misses making a bill payment
- When a borrower makes a credit application but it is not approved
- When the borrower has never taken a loan in the past and the lender is unsure if he will be able to make payments in time
When a borrower fails to make timely repayment of the loan installments for any reason, they get a low credit score. With low credit score it becomes difficult for a borrower to get loans in future. The financial institutions always check your credit score before they lend out. A low score would mean the borrower has had defaults in the past and thus they are skeptical in lending you the money.
Credit Score or CIBIL Score
Whenever one needs to borrow a loan, the financial lending institutions like bank do a financial background check on the borrower to ascertain if she/he is capable of making the payments and clearing their loan. CIBIL (Credit Information Bureau Limited) score is a number in the range 300 – 900. Higher the number, higher is your chance of availing a loan and also at a better interest rate. Each person is assigned a CIBIL score and all the banks and financial institutions in India recognize this number. The loan approval is very much dependent on this score. Maintaining a healthy CIBIL score is absolutely essential, so one must make EMI payments and credit card payments on time. CIBIL score is determined by one’s home loans, credit card loans, vehicle loans etc. It is a cumulative of all these loans. Paying your loan payments on time augments your score where as defaulting on payments will bring it down.
How to find CIBIL Score?
CIBIL score can be obtained online. The request form for CIBIL score is available online at CIBIL’s website. The form requires minimal personal information along with a nominal charge. One can fill up the form and submit the fees for CIBIL score online, and can expect to get the credit report in their email within a day. The personal information needed is like one’s name, address proof, date of birth, phone, income, identity proof etc. The fee for the process is about Rs.500.
What Do CIBIL Score Numbers Mean And How To Maintain A Good Score?
CIBIL score lies between 300 on the lower side and 900 on the higher side. Anything above 750 is considered to be a good score, and you are likely to get loan for most of your needs from almost every bank. On the flip-side, if your score is below 350 then it is considered to be a bad or poor score and most of the banks and financial institutions would be reluctant to offer you a loan.
Your payment history affects your score. So try keeping a clean and healthy history by making on-time payments. Do not try to have to have too many revolving loans or too many credit cards. This impacts your score negatively. Unsecured loans can also bring down your score.
What Is Bad Credit Loan, When Can You Apply For Them And What Is Their Status In India?
Borrowers with bad credit history are offered bad credit loans. These come at higher interest rates than the normal rates prevailing in the market. When a person has a bad credit history and is badly in need of cash for any reason, there is no other option but to apply for a bad credit loan. Since the rate of interest changed on these loans depends on discretion of the lender, he/ she usually charges high rates as the risk involved is high for him/her. Thus it is always advisable to compare rates being charged by various financial lenders and apply for the one, which is the lowest.
Unfortunately there are no bad credit loans available in India. Financial institutions do not usually offer you loan if you have bad credit history. For people requiring immediate loan, bad credit history makes the chances very dim. If anyone applies for a loan at this point and it gets rejected, it would lower his or her credit score further. It also has an adverse effect on their credit history.
Do You Still Stand A Chance Of Applying For Loan With Bad Credit History?
Anyone can fall into unavoidable financial crunch, which might lead to default in repayment. This undoubtedly lowers your credit score. However that does not mean you will never get approval for future credit loans.
Options To Consider Before Going For A Personal Loan Again:
Use Fixed Deposits
If you have any fixed deposit that you can break now, then use it for your need rather than going for a loan of the same amount.
Borrow From Friends And Relatives
If possible then borrow from your friends or family who understand you better than a financial lender. You might also extend the repayment period depending on your situation, as they are more considerate. Rather than repaying the entire amount together, try to repay in installments.
Borrow From Co-operative Society/Religious Institutions
In some cases the co-operative society that you belong to might give loans to its members. Try to find out what are their terms and conditions. They usually do not consider credit score and offer loans on basis of your reputation and existing member reference and other member approval. Some religious institutions also offer loans to ones who need it in difficult times. You can also approach them and put forward your case, as they are more considerate in case of repayments than financial institutions.
There are certain cases when bad credit loan applications are considered:
Improve Your Credit Score
If you have good terms with your bank then you should talk with your relationship manager and explain him/her why did you make a default in the repayment. In certain cases the bank might offer you ways to repay remaining of your loan. If you now diligently make all payments on time or before time then that increases your credit score and makes you eligible for the next loan.
Get Loans Against Fixed Deposits With Bank
Sometimes if you have fixed deposits in the bank, they might offer you loans amounting to the value of these deposits. This way the banks interests are secured by your fixed deposits amount as they can recover the money from there in case you fail to pay.
Get Credit Cards Against Fixed Deposit Amounts With Banks
If you have fixed deposit with banks then they might issue you credit cards that you can use for your immediate cash requirements. Though the withdrawal limit is less but it takes care of some of your cash requirement. However do take care not to cross the limit set by the bank otherwise it might adversely effect your credit score again. Credit card rates vary from 10% and go up to 30%. HDFC offers a range of credit card loans like insta-loan, which is within your credit card limit and for low EMI’s.
Existing Long-Term Customers Are Given Preference
If you have an account for a long period and maintained a steady account balance in the past then bank might talk to you as their preferred customer and talking with your relationship manager might help them consider your case. They might work out some arrangement beneficial to you and the bank as well.
Get Loans Against Security
If you have some property in your name that you can keep the papers with the financial institution then they might consider giving you the loan. In this way the lender secures his/her risk if you are not able to pay. You have to be very careful with the terms and conditions while going for this kind of loan option and make repayments on time as defaults might cost you to part with your property.
This is a great product offered by most of the banks. One can borrow or take out a personal loan against life insurance, shares and securities if one has a bad CIBIL score. One can get a loan against gold or gold jewelry as well. Banks do not do a whole lot of credit history check for such kind of products. Surprisingly, the interest rates from most of the banks against gold and securities are not exorbitant. Some of the banks like Axis and SBI will give you loan against these products for about 11% – 13%. The exact rates for a particular situation can be obtained from the banks. Below are some URLs where you can get some idea about such loans.
Secured Loans Are The Best Option For Loan In India For People With Bad Credit History
The borrower has to keep one of his/her properties as security with the financial institution to avail the loan. It benefits the borrower as he gets to negotiate the rate of interest and get quick loan and the lender gets his/her money secured. In this type of loan credit history does not play much of a role.
Below Are The Features And Benefits Of A Secured Loan:
- Loan is given against a security thus you get a loan even if credit history is bad
- Interest rates are lower and amount of loan depends on value of asset
- You can choose between fixed or variable rate of interest depending on your need
- The loan approval process is quick
- You can apply for different loans for different purpose
- Third party guarantee is not required
- Interest paid is tax free
- Most of the banks and financial institutions offer these loans
- You can either visit the branch or apply online
Get Back Your Credit Score
You can get back your credit score by paying off your existing loan. Talk to the existing money lending institution and work out a way where they might give you extra time to pay it off. Do wait for few months before approaching for another personal loan. Once you get back your credit score you can apply for personal loans again with normal market rates.
No Credit Check Loans
This is a loan type that is quite similar to the concept of P2P or peer to peer lending in U.S. Here, you can take loans from websites that house vendors with some extra cash, which they don’t mind lending out. So if you want quick loans for a short term, this really works great. But interest rates touch the sky. In case of long-term loans, be prepared to shell out at least 36% per annum, which is a whopping number.
When you fall into a bad credit history there are many lenders who promise to give you loan against high-interest rates. Do not fall prey to these shark lenders and think twice before approaching them. If your need is urgent then you can consider getting a secured loan. However it is advisable to wait for some time and get your credit score back in good track by paying off your existing loan. Collateral loans are the best option since the rate of interest associated with such loans is reasonably low.
Personal loans, as the name indicates, are not associated with any specific kind of loan but are a great way of dealing with emergency situations or for those cases where normally loans are not available.
Some facts and benefits of personal loans:
- Personal loans are usually not secured; they do not require any kind of collateral security.
- One can use a personal loan for any purpose. There is no obligation from the bank for any specific need.
- Personal loans are offered both by banks as well non-banking financial institutions.
- These personal loans are helpful for sponsoring a child’s education or buying a piece of land or for marriage or even for holidaying.
- Personal loans are usually on the higher side and these rates vary across the banks.
- Personal loans, apart from being useful for personal purposes, also have the added advantage that their disbursement take very less time and they require minimal documentation for the processing purpose.
- Unlike home loans, personal loans come with a short-term tenure and are usually given for a period of 1 to 5 years.
What to consider before applying for a personal loan?
Everyone wants to get the best deal when applying for a personal loan. Here we will do a comparison of personal loan rates for different banks. This will help you in getting an evaluative view of the loan, which suits your requirements the best.
The rates for personal loans for any bank are not fixed but variable. Rates can be different depending on two major factors:
- The amount of loan needed
- The term period of the loan
Apart from the above, some other factors that are considered by banks include:
- Bank’s pet! Banks offer special personal loan rates for their preferred customers.
- Sometimes, it has been observed people with higher salaries and multiple investments with a bank are offered a lower rate for personal loan.
- Along with these factors, banks will take into account the company employment status and borrower’s credit standing or credit history. So it is important that you pay your credit card bills and loan EMIs on time.
- Another thing to bear in mind while applying for a personal loan is to consider the other loans that you might be holding. Your eligibility for a personal loan will certainly be impacted if you already have other loans going for you.
- Personal loans are usually not offered if you are a student or have retired from active service.
How to find out the best deal for you?
There are many financial institutions that offer personal loans. It can be a tedious task trying to find out the best or the most suitable one for your personal need. We have provided a brief comparative analysis of personal loan for some of the top banks and financial institutions like ICICI Bank, HDFC, SBI, Fullerton India, Kotak Mahindra Bank etc.
There are many different parameters of comparison. We will consider some of them here:
#1. Rate of Interest
The most obvious parameter is the rate of interest itself. The table below shows the most recent personal loan interest rates updated in November 2015.
|ICICI Bank||13.49% – 17.50%|
|HDFC Bank||12.99% – 20.00%|
|Kotak Mahindra||11.50% – 20.00%, Special Offers of 11.5% for 15 lac + 1 lakh Salary P.M|
|Axis Bank||15% – 20%|
|Bajaj Finserv||15% – 17%|
|Standard Chartered||14% – 18%|
|Fullerton India||16% – 32%|
|IndusInd Bank||14% – 16.5%|
(Source: Best Loan Providers)
#2. Processing Fee
All the banks have a certain minimum-processing fee attached with personal loan. Most of the banks have processing fee varying from 1% to 3%. A break-up of latest processing fee is tabulated below:
|Bank||Processing Fee Rate|
|ICICI Bank||0.8% – 2.0%|
|HDFC Bank||0.99% – 2.0%|
|Bajaj Finserv||2.0% – 2.5%|
|Kotak Mahindra||Rs. 500 – 2.0%|
|SBI||2.0% – 3.0%|
|IndusInd Bank||1.0% – 2.0%|
(Source: Best Loan Providers)
#3. Prepayment Charges
There are certain banks that levy a pre-payment charge on personal loans. There are many banks that do not charge anything if you want to payoff your personal loan well in advance. If you think that there is a possibility for you to use the prepayment option at some point of time during your loan payment then it is important to consider and compare banks that charge prepayment penalties. Sometimes the prepayment charges can be as high as 4% – 5% and you would want to be careful before considering a personal loan from such financial institutions. Below are the prepayment charges for different banks.
|Bank||Processing Fee Rate|
|Standard Chartered||0 – 5.0%|
|Kotak Mahindra Bank||3.0% – 5.0% (Nil after 12 Months for Loan amount above 10 lacs)|
|ICICI Bank||5.0% Or Nil (For Loan Amount More Than 10 Lacs)|
(Source: Best Loan Providers)
Online EMI calculators help to decide the personal loan amount
There are many online EMI calculators available that can help you decide what amount of personal loan you can comfortably apply for within your budgetary constraints.
The following picture gives a brief description of how the EMI calculator can help you decide the personal loan amount based on your budget. For example, if you can afford to pay an EMI up to Rs.12000 for 5 years for an amount borrowed at an interest rate of 15%, then you can safely apply for Rs.500000.
(Source: EMI calculator)
You can clearly see that on a borrowed amount of Rs.5 lacs @15% rate, one would have to pay almost 30% of the borrowed amount as interest payment. EMI calculators help you show you at a quick glance what are the various financial parameters at play so that you can easily decide what suits your needs the best. These financial calculators can be used for any bank. All one has to do is to plug in the rates and adjust the loan and tenure fields and the calculators will tell you exactly your EMI payments.
Apply for a Personal Loan
Below are some of the bank sites where one can apply for a personal loan online:
Similar website URLs are available for other banks and financial institutions which offer personal loans.
The personal loan offers from various institutions are quite competitive. Banks like ICICI, HDFC, Axis and SBI stand apart a bit from the other banks with respect to their interest rates, processing fee and prepayment charges. ICICI, Axis and HDFC banks have variable range of interest rates and the lower interest rates are certainly an attractive feature for those who qualify. If one wants fixed interest rate, then SBI is the best choice although it’s a bit on the higher side. These four banks offer a good deal on processing fee as well with most of them having a higher limit of 2%. SBI has its processing fee higher limit of 3%. In prepayment charges SBI and Axis bank levy no charge, where as HDFC charges 4% and ICICI 5%. ICICI does not charge any prepayment fee for personal loans in excess of 10 lacs.