A bad Credit score is the biggest bottleneck which can lead you to rejection for applying for a loan. Whether it’s a personal loan, home loan, car loan, or any other type of loan, a low credit score is dangerous for you and may become a hurdle for your financial growth.
The credit score of an individual is connected to one’s PAN card and incorporates a variety of factors like historical loan repayment record, income, etc When someone has a bad credit score, his/her ability to secure a loan is reduced in that case the best option is to get a loan with high interest rate.
In this article, we will discuss how to get a loan with bad credit, documents required, etc. but first, let’s find out why get a loan with Bad credit.
Why get a Loan with Bad Credit?
There are three credit rating companies in India -CIBIL, Equifax, and Experian.
The credit rating companies create a credit profile using the details on your PAN card and based on the profile’s financial strength and capabilities, you’ll be scored anywhere between 300 to 900. 300 being the lowest and 900 being the highest and the best.
If you have a bad credit score, then you can improve your credit score by using various steps one of them being taking bad credit loans.
Bad credit loans are those loans that you take to improve your credit score. Credit score looks at your past repayment history and it holds an important place.
With proper repayments, you can make your credit score increase hence, enabling you to reach a good credit score. A bad credit score loan can help individuals with no credit history or someone with a bad credit history.
Advantages of Bad Credit Loan
The following are the advantages of bad credit loans-
- A bad credit loan is an easy-to-get loan which means even with a bad credit score you’ll get the loan
- The lending guidelines are very flexible and you do not have to strictly adhere to the set banking norms except for the repayment of the loan
- NBFCs and other financial institution generally provides bad credit loans
Disadvantages of Bad Credit Loan
The following are the disadvantages of a bad credit loan-
- You may be charged additional fees, early repayment fees, and others which may increase the cost of the loan
- Bad credit loan is provided with a higher interest rate which makes it not so profitable
- A bad credit loan is usually a secured loan where you’ll need to provide collateral to secure a loan
- Bad credit loan has the potential to become a predatory product meaning, you may be shown that you are paying a lower interest rate however, in actuality, you’ll be charged an unprecedented amount of interest
How to Apply for a Loan with Bad Credit?
The application process for applying for a bad credit loan is similar to the other loan applications, the only difference being where the loan is being applied.
You can approach a NBFC or any loan agent. The following are the steps that you can follow to apply for a loan with bad credit-
- Visit the bank/NBFC’s premises and talk to the loan officer regarding the bad credit loan
- Discuss and provide all the documents you have and based on the documents ask the officer for the loan amount provided.
- Now, you’ll have to fill out the application form with details like name, address, education qualification, etc. followed by attaching the documents mentioned below
- After filling it out, you’ll have to hand it over to the loan office. In a few days, the banking officer may survey the property you are submitting as collateral.
- Upon complete verification, your loan application will be completed and you will be provided with the loan terms and conditions
- If you agree to them then you’ll have to provide a mandate (it depends on the bank whether they provide eMandate or via cheque)
- Your loan amount will be dispersed within a few working days after this
Documents Required for Applying for Loan with Bad Credit
The following are the documents required for applying for a loan with a bad credit score-
Identity Proof
- PAN Card
- Aadhaar Card
- Valid Indian Passport
- Valid Voter ID
- Valid Driver’s License
Address Proof
- Aadhaar Card
- Valid Indian Passport
- Valid Voter ID
- Valid Driver’s License
- Utility Bills (Electricity, Water, Gas) dated within the last 60 days
Income Proof
- Salaried Applicants – Last 3 months’ bank statements of your salary account in PDF format showing salary credits OR, Self-Employed Applicants – Last 3 months’ bank statements in PDF format if you are self-employed
- Collateral documents like property papers, etc.
FAQ
Cheque bounce may not have a direct impact on your credit score however, it may affect your credit score indirectly. There are also other consequences of cheque bouncing which may lead to a lowering of your credit score, penalty charges, jail terms, etc.
Yes, you can recover from a bad credit score easily by improving your financial standing, improving your credit score, and reducing all your financial liabilities.
Yes, within 7-10 years, the past credit history will be cleared as the new credit history builds.
Yes, 600 is a low credit score number and will severely limit your loan ability. The mid score for loans is in-between 700-800 and the best score ranges from 800-900.
