Financial institutions check the CIBIL score of an individual when they apply for any form of loan. This article will highlight the ways to get a personal loan for CIBIL defaulters. Continue reading to know more about the same.
Who Are CIBIL Defaulters?
The phrase ‘CIBIL defaulter’ is not a legal term. Further, this term does not even appear on a person’s credit report. However, individuals with a low CIBIL score, usually lower than 650, are regarded as CIBIL defaulters. This is because their low CIBIL scores are a result of a default on their loans or other credit obligations in the past.
Ways to Get a Personal Loan for CIBIL Defaulters
Most financial institutions will reject a personal loan application in case the borrower has credit defaults in the past, resulting in a low CIBIL score. However, even with a low CIBIL score, there are several ways to obtain a personal loan. Here are some methods for obtaining a personal loan even with a low CIBIL score:
- Applying for a personal loan with a guarantor
Individuals with a low CIBIL score but a stable source of income can get approval for a personal loan with the help of a guarantor. Having a guarantor reduces the risk the lender is taking by lending money, as the guarantor is under an obligation to make good any defaults committed by the primary borrower. Having a guarantor enhances the likelihood of faster loan approvals. The guarantor must, however, have a high CIBIL score. Additionally, one should keep in mind that the guarantor’s CIBIL score would suffer if the primary borrower fails to repay the loan amount. Considering this, one may note that looking for a guarantor is a difficult task and usually one’s close friends and family are people who can assist you in this regard.
- Borrowing at high-interest rates
One of the methods to get a personal loan for CIBIL defaulters is to avail of this credit facility at higher rates of interest. However, you should know that opting for a loan at higher rates of interest increases the total loan repayment amount and failure to repay those obligations results in a more negatively impacted CIBIL score. Hence this step needs to be taken after thinking through in detail how the repayments will be made. Having a sound financial plan to ensure repayments on time is ideal before going for this method.
- Providing proof of a stable source of income
You must provide documents as proof to the lender that your income is sufficient to cover the EMI payments. Additionally, you need to make sure that your fixed obligations to income ratio are favourable. This ratio measures the portion of your income that you use to pay your debts. Even if you have a CIBIL default, you will have a better chance of acquiring a personal loan if you are paying less than 40% of your monthly income toward your monthly debt payments.
- Opting for a loan by keeping a mortgage
A personal loan is a type of unsecured loan that can be obtained without a mortgage. However, if your CIBIL score is extremely poor, you could request the financial institution to offer you a loan in exchange for some sort of security as collateral. To prevent the loss of ownership of the collateral, make sure that such secured loans are repaid on time.
- Boosting your CIBIL score
In case you have credit defaults in the past, prospective lenders will require proof of your creditworthiness. The CIBIL score is regarded by most lenders as the most accurate tool for determining a person’s creditworthiness. Therefore, the best course of action is to boost your CIBIL score before applying for a personal loan.
Ways to Improve and Maintain a Decent CIBIL Score
One can take a number of steps to improve the CIBIL score. The following are some actions that can be taken to maintain a good credit score:
- All bills must be paid in a timely manner, fully if possible. Paying only the minimum balance can have negative long-term effects on the CIBIL score.
- Make sure to keep your credit utilisation ratio up to 30% of the total credit limit.
- Maintaining a loan portfolio with a proper balance of secured loans (such as car and mortgage loans) and unsecured loans (personal loans and credit cards).
- In case an individual is a guarantor for a credit, closely monitor the financial activities and loan accounts of the primary borrower. Ideally, one should not decide to sign as a guarantor unless they are very certain and can provide proof that the borrower can pay back the loan on schedule.
- Individuals should consider checking their credit reports on a regular basis, pointing out errors, and reporting them to the credit rating bureaus.
In order to easily obtain loans, both unsecured and secured, maintaining a strong credit score is crucial. Building a decent credit score is crucial whether one has defaulted on personal loans for a short period of time or for a number of years. This statement also holds true for other loans. One can follow any of the ways mentioned above to obtain a personal loan for CIBIL defaulters.
FAQs about Ways to Get Loans for CIBIL Defaulters
Is there any form of CIBIL defaulter list?
No, CIBIL does not keep a list of defaulters. It just keeps a track of people’s credit histories. Further, one must know that financial institutions do not use any defaulter list while making lending decisions.
Can CIBIL defaulters apply for a loan?
Though the chances of getting loan approval are less, CIBIL defaulters can apply for a loan. However, CIBIL defaulters may have to pay higher rates of interest on the loan.
Who are CIBIL defaulters?
Any individual who has a CIBIL score of less than 650 is considered a CIBIL defaulter. This is because their low CIBIL scores are a result of their defaulted credit obligations in the past.
What is a CIBIL score?
A CIBIL score is a three-digit numerical value provided to an individual based on their credit history and repayment behaviour.
Nishant is a qualified lawyer from NALSAR University of Law, Hyderabad having 7+ years of experience and is the Chief Compliance and Legal Officer at Wint Wealth. He has been working in the finance and wealth management space for the past 5+ years and is an NISM certified mutual fund expert.
He has previously worked for Khaitan & Co and Scripbox.