Can I Get a Loan With a CIBIL Score of 550?

A personal loan is a type of unsecured loan that one can borrow from a bank or a non-banking finance company (NBFC) for any need such as a medical emergency, home improvement, education, shopping or even to pay other loans that may be maturing.

Unlike a secured loan, such as a mortgage or a car loan, a personal loan doesn't require a collateral, which means you don't have to put up any assets as security to qualify for the loan.

Personal loans typically have fixed interest rates, which means that the interest rate and monthly payments remain the same for the life of the loan. The loan amount, repayment terms and the rate of interest depend on the lender and your creditworthiness, income, and other factors. A standardised procedure that involves examining the credit history is used to determine creditworthiness.

The credit score is also known as the CIBIL score, which is named after the first Indian organisation that pioneered the nation's credit scoring system, captures credit history. Borrowers will typically need to have a good credit score and income to qualify for a personal loan with favourable terms and rates.

Eligibility criteria for a personal loan

Income: A person needs to have some sort of income, preferably salary. Lenders prefer higher income and lower current loans for giving personal loans.

Credit Score: The credit score is a three-digit number that lies between 300 and 900. Better chances of timely loan payback are associated with higher scores, and vice versa. A high score also increases the possibility of the lender agreeing on a lower interest rate and easier repayment terms. It also makes the loan sanctioning procedure quicker.

The score captures the borrower's historical behaviour with current or prior loans and credit cards under their name, especially during the preceding three years. A missing equated monthly instalment (EMI) lowers the borrower's credit score.

What Should You Know About CIBIL Score?

A CIBIL score of higher than 750 is preferred as it give lenders confidence in the borrower’s chances of repaying the debt on time. However, different lenders have varied risk appetites. While banks are stricter in adhering to this limit, NBFCs typically accept borrowers with lower scores.

Most lenders have 600-650 CIBIL score as their lower threshold for giving personal loans, but some can also accept scores around 550 levels, albeit with riders. Lenders usually agree on what they consider a good CIBIL score but they differ widely when it comes to their ‘acceptable’ level of 550 as the minimum score.

How to Improve Your CIBIL Score?

Borrowers’ creditworthiness is not cast in stone and they can push up their score over time. If you have a credit score of 600, 550 or even 500, you can improve it by taking a few steps.

First and foremost, make sure that you pay off existing loans on time. This means that you should never miss the due date for equating monthly payments for other outstanding loans.

Another easily available option that is taken into account when calculating credit history is a credit card. Every month, a credit card user must be sure to pay the dues.

Also, one should avoid too many loans because they reduce one’s ability to repay new loans. Hence, if one wants to borrow money for their business, they should try to make sure that any credit card debt that still needs to be paid off. Moreover, if possible, one should pay off some or all the other personal loans. Make sure to pay off the collateral-free personal loan first if you have both secured loans like a mortgage and other "unsecured" loans.

Loan applications also have an impact on the rating. Hence, one should be careful not to continually applying for loans on a casual basis, as that itself is recorded and shows how anxious one is to borrow.

Can I Get a Loan with a Low Credit Score?

A borrower with a below average CIBIL score can also get a personal loan, albeit with stricter terms and a higher interest rate.

By completing one or more of the four steps listed below, people with poor CIBIL scores can increase their chances of being approved for a personal loan:

1. Get a co-applicant
2. Getting a guarantor
3. Pledge a collateral
4. Seek lower loan amount

Disadvantages of Loan with a Low CIBIL score

High-interest rates: With a low credit score, you are considered a high-risk borrower, and lenders may charge you a higher interest rate to compensate for the increased risk. This means that you will end up paying more in interest charges over the life of the loan, which can make it difficult to repay the loan on time.

Limited loan options: Lenders may be hesitant to approve your loan application if you have a low credit score, and you may have limited loan options available to you. This means that you may have to settle for a loan with less favourable terms than you would have otherwise qualified for with a better credit score.

Higher fees and charges: In addition to high-interest rates, lenders may also charge you additional fees and charges, such as application fees, processing fees, and prepayment penalties, if you have a low credit score. These fees can add up quickly and make it even harder to repay the loan.

Conclusion

Most lenders favour borrowers with strong credit histories and high CIBIL scores. Having said that, a person with a credit score of 550 can still obtain a personal loan by applying cleverly, requesting a smaller loan amount, and making full repayments on time to increase their CIBIL score.

Bringing in a co-applicant or a guarantor or pledging an asset can also be of great help if you want a personal loan with a CIBIL score of 500 or 550.

Frequently Asked Questions

Which factors influence your CIBIL Score?

Various factors go into calculating the CIBIL Score, including the person’s credit history, loan repayment history, credit utilization, credit mix and credit inquiries.

What is the best CIBIL Score for a personal loan?

Most lenders prefer a CIBIL Score of 750 and above for personal loan.

Should I apply for a loan even though I have a low credit score?

You can apply for a personal loan despite low credit score as there are other factors like income etc that also influence a lender’s decision to approve loans. However, if you can wait it is advisable to improve the score first.

Where can I get a free credit report?

CIBIL provides one free CIBIL Score and Report once a year. The report can be accessed by going to CIBIL’s website and creating an account.