Credit scores and personal loans are connected. The concept is simple. The lower the credit score, the more difficult the loan process. Getting a loan despite a bad credit can be difficult but it is not impossible. You can opt for payday loans or peer-to-peer lenders if your credit score meets the minimum requirements. Some NBFCs also offer loans to people with low CIBIL score. BNPL(Buy Now Pay Later) is another option for those seeking urgent credit for essential purposed. This article aims to shed light on how to get instant loans for bad credit and tips to improve your chances of getting a loan.

What is Bad Credit?

‘Bad Credit’ describes unpaid credit by banks and financial institutions. If you own a credit card or have an ongoing loan, it is important to pay it back. Failing to make timely repayments can affect your CIBIL score which also affects your loan process. Hence, it is better to ensure that you have a good CIBIL score before applying for any loan or name a reliable co-applicant who has one. The following factors can result in bad credit.

Maxing your credit cards: It is not just unpaid loans that contribute to a low CIBIL score. If you own a credit card, maxing it out frequently can affect your CIBIL score.

Non-payment of dues: Failing to pay your monthly EMIs or credit card bills will affect your CIBL score adversely.

Frequent use of BNPL: While Buy Now Pay Later is a good option to borrow money temporarily, using them frequently can be a factor in the downfall of your credit score. Opt for this credit option only when required. A few BNPL providers are Axio, Vysya bank, Amazon Pay Later, Flipkart Pay Later, Simpl, Lazypay, etc.

Can You Get a Loan with Bad Credit?

Your CIBIL score reflects your creditworthiness to lenders. It is a measure of your ability to repay loans. A credit score below 700 is considered to be low by most major banks and private ones. However, there is still hope for people who meet the minimum eligibility criteria for certain loans.

Loans are majorly classified as secured and unsecured. In India, major banks like SBI, Bank of Baroda, Union Bank, etc. provide both at affordable interest rates. But they consider a person’s CIBIL score before approving loans of any kind. Hence, if you have bad credit, it is possible that these major lenders may hesitate to provide loans. Private banks and NBFCs offer loans to people with a CIBIL score of less than 700 but not lower than 500. It is good practice to name a co-applicant with a fairly better CIIBIL score while applying for such loans.

Factors to consider while choosing a loan

While borrowing loans is the only way to tackle unprecedented financial needs, it is important to consider a few points before applying for one. The following factors are a common denominator for all types of loans, regardless of their nature.

Interest Rates: Instant loan providers levy heavy interest on short-term loans. Hence, it is essential to read and understand the interest payment terms of your lender.

Moratorium: In the case of education loans, a moratorium period or waiting period is granted to the beneficiaries. Check out the moratorium period rules of your lender before you decide to borrow education loans.

Repayment criteria: The loan repayment criteria of various banks and lenders is different.  Check if your bank’s policies mention a moratorium on repayment. Or whether extra charges are applicable for early repayment of loans. This is where your CIBIL score comes into the picture. Ensure that your CIBIL score is good enough to be considered by banks for personal loans. Urgent loans for bad credit come with strict repayment policies. Adhere to them during your repayment period. 

Processing fees: Keep an eye out for processing fees levied by banks and private lenders. The processing fees for private loans are higher than those levied by government lenders.

There are numerous other factors to consider before borrowing a loan. There are other options of instant loans for bad credit in India. The next part tells you all about the top lenders offering urgent loans for bad credit.

How to Apply for an Urgent Loan with a Bad Credit Score?

1. Evaluate Your Needs and Eligibility

    • Determine the exact loan amount you need and ensure you can afford the EMIs.
    • Check if your income meets the lender’s minimum criteria to avoid rejection.

    2. Research Lenders for Bad Credit Loans

    • Look for NBFCs, online platforms, or P2P lenders that specialize in bad credit loans.
    • Compare interest rates, processing times, and reviews before applying.

    3. Prepare the Required Documents

    • Gather documents such as identity proof (Aadhaar/PAN), income proof (salary slips/bank statements), and address proof (utility bills/rent agreement).

    4. Apply Online for Faster Processing

    • Choose lenders offering instant online applications.
    • Submit your details and upload documents to get quick approval, often within 24-48 hours.

    5. Consider Secured Loans or a Guarantor

    • If your credit score is very low, opt for a secured loan (e.g., gold loan) or apply with a guarantor who has a strong credit score.

    6. Verify the Loan Terms and Repay Promptly

    • Review the interest rates, repayment tenure, and hidden charges before accepting the loan.
    • Repay on time to avoid penalties and improve your credit score for the future.

    Fees and Charges for Urgent loan with Bad Credit

    Fee TypeDescriptionRange
    Processing FeeOne-time fee charged for processing the loan application.1% – 6% of the loan amount
    Interest RateAnnual percentage rate (APR) charged on the loan amount.18% – 36%
    Late Payment FeePenalty imposed for missing EMI payments.₹500 – ₹2,000 per missed EMI
    Prepayment ChargesFee for repaying the loan before the agreed tenure.2% – 5% of the outstanding loan amount
    Loan Tenure ChargesAdjustment fees for changing or extending the repayment period.₹1,000 – ₹2,500 per adjustment
    Loan Insurance FeeOptional insurance to cover the loan in case of the borrower’s inability to repay.₹500 – ₹2,000 (one-time)
    Verification ChargesFees for verifying documents and processing KYC (Know Your Customer).₹500 – ₹1,500
    Service Tax/GSTTaxes applied to fees and charges as per government regulations.18% on applicable fees
    Bounce ChargesFee for bounced EMIs due to insufficient account balance.₹300 – ₹1,500 per instance

    Documentation Required For Urgent Loan With Bad Credit In India

    Identity ProofAddress ProofIncome Proof
    Aadhaar CardAadhaar CardSalary Slips (Last 3 Months)
    PAN CardPassportBank Statements (Last 6 Months)
    Voter ID CardVoter ID CardIncome Tax Returns (ITR) (if applicable)
    PassportUtility Bills (Electricity/Water)Employer Certificate (if required)
    Driving LicenseRent AgreementSelf-Employed: GST Returns or P&L Statements

    Top Lenders Offering Urgent Loans for Bad Credit in India

    Bad Credit is an umbrella term describing incomplete loan/credit card payments. Of late, the number of cases of bad loans has come down due to the government’s strict policies for borrowers. This does not mean it is the end of the road for instant loans for bad credit. Following is a list of options for instant loans with bad credit in India.

    Peer-to-peer lenders

    Peer-to-peer lending platforms connect lenders and borrowers without involving conventional financial institutions. This system was initially introduced to help borrowers spurned by normal banks. Peer-to-peer lending platforms offer home loans, business loans and personal loans at comparatively lower interest rates than mainstream banks and private lenders. It is a good option to consider for instant loans with bad credit.

    This is how peer-to-peer lending works.

    • The Investor opens an account with an online P2P platform and deposit money in their account.
    • The peer-to-peer lending platform helps them to connect with potential borrowers. 
    • Since they provide loans, investors in association with the online P2P platform, decide the terms and conditions for lending to various borrowers.
    • Once the borrower’s background check is conducted by the platform, investors approve of the funds and help borrowers resolve their finances.

    P2P platforms have to be approved by the RBI to function in India. They check the borrower’s financial history thoroughly before lending loans. Not all Peer-to-peer lenders offer personal loans for people with bad credit. Different platforms function for different goals. For example, Rang De is one of India’s leading peer-to-peer lending platforms that enables small-scale entrepreneurs to realise their business dreams. On the other hand, LiquiLoans, another peer-to-peer lending platform offers instant personal loans at nominal interest rates. 

    P2P platforms are an excellent option for unbanked borrowers to fulfill their financial needs at reduced interest rates, however, the interest rates for those with bad credit may be on the higher end.

    Payday Loans

    Payday loans are the best instant loans for low credit in India. Payday loan providers offer loans quickly, without a lot of paperwork. However, the interest rates for bad credit borrowers are high and their repayment policies are stringent. These lenders consider factors like credit score, loan repayment duration,etc., before lending. Simpl, Lazypay, Amazon Pay later are some of the few Payday loan providers in India.

    Secured Loans

    All traditional banks in India offer secured loans to borrowers with low credit scores. A credit score of 500 and above is required for secured loans. If you have assets of significant value, getting a secured loan despite a low credit score is possible. SBI, Bank of Baroda, Union Bank, etc. are some of the secured loan providers in India.

    How to Improve Your Chances of Loan Approval?

    Although securing instant loan for bad credit is difficult, it is not impossible. If you have a bad credit score, implementing the following best practices can improve your chances of loan approval.

    Avoid having multiple credit accounts: In this era of instant loans, it is easy to be lured by credit card offers as credit cards provide benefits other than credit. Remember that multiple credit accounts can affect your CIBIL score, thus diminishing your loan options.

    Check your CIBIL report regularly: It is easy to access your CIBIL report. Nowadays, you can check your score and report by just entering your PAN and a few other details. Your CIBIL score will not be affected by this.

    Timely Repayments: Ensure that you repay your loan EMIs or credit card bills on time. Mark a day in your calendar to do so. This can help restore your score and prove your creditworthiness to lenders.

    Instant loans for bad credit are easily available. But, remember that the terms and conditions laid by lenders for bad credit in India are equally stringent. Payday loans, BNPL schemes, secured loans and Peer-to-peer lending platforms are some of the best options for instant loans with bad credit. Read their offer documents thoroughly before committing to anything. To improve your chances of getting loans at low interest rates, follow certain best pracitces to ensure a good CIBIL score. 

    FAQs

    Q. Can I get a personal loan with bad credit?

    Yes, you can get a personal loan with bad credit, though it would certainly be at a higher interest and more severe conditions. Many financial institutions, NBFCs, and online lenders offer options, especially for low credit-scoring individuals.

    Q. How does bad credit affect my loan application?

    A low credit score indicates a higher risk for lenders, which might result in:

    • Higher interest rates.
    • Limited loan amount eligibility.
    • Additional scrutiny during the application process.
    • Rejection by traditional banks, making NBFCs or private lenders a better option.
    Q. What documents are typically required for a personal loan with bad credit?

    In order to complete the personal loan application, you will be asked to show identification, income validation in the form of payslips, as well as provide a couple of passport-like photos and authenticate your home address.

    Q. How quickly can I get approved for a personal loan with bad credit?

    This depends entirely on the lender. While most processes happen quickly, a few NBFCs prefer approving your loan within 48 hours.

    Q. What is the maximum loan amount I can get with bad credit?

    This will depend on several factors like your income, capacity to repay your lender, policies, etc. However, the maximum amount can be between 10,000 to 50,000.

    Q. Can I improve my credit score with a personal loan for bad credit?

    Of course. The timely repayment of the loan EMIs increases your chances of getting a better credit score in the future.

    Q. Are there alternatives to traditional banks for bad credit personal loans?

    Absolutely. People with poor credit have alternatives such as 

    • Non-Banking Financial Companies
    • Permanent Lenders on the Internet.
    • Lending Networks (People to People (P2P)).
    • Rural or semi-urban microfinance institutions.
    Q. Can I apply for a personal loan online with bad credit?

    Absolutely. Many NBFCs and online lenders have streamlined digital processes, enabling quick and easy applications. Simply visit their website or mobile app, upload the required documents, and track the progress online.

    Q. Is collateral required for personal loans with bad credit?

    Personal loans are usually unsecured, meaning no collateral is required. However, for applicants with very poor credit, some lenders might ask for a guarantor or collateral to minimize risk.

    Q. What should I consider before applying for a personal loan with bad credit?
    • Interest rates: Compare rates from multiple lenders to avoid excessively high costs.
    • Hidden charges: Check for processing fees, prepayment penalties, and other charges.
    • Repayment terms: Ensure EMIs are affordable to avoid defaults.
    • Reputation of the lender: Opt for trusted lenders to avoid scams.
    • Purpose of the loan: Borrow only what you genuinely need to avoid overburdening yourself.
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