Loans specifically designed for individuals with a low or no credit score are bad credit loans. Numerous lenders are hesitant to lend to individuals with a low credit score due to the increased risk of defaulting on payments. A low credit score reflects an individual’s limited repayment capacity, making it difficult to find a lender willing to offer them a loan. However, there are still ways to obtain loans online for bad credit.
When Does Someone Need Bad Credit Loans?
The following situations necessitate the use of loans online for bad credit:
- The applicant has previously fallen behind on their loan payments
- They have fallen behind on payments on their credit card
- The applicant has never taken out a loan and has no financial history (applies to people just starting their careers)
- A previous loans online application was denied due to a poor credit score
Things to Keep in Mind Before Availing Loans Online for Bad Credit
- Conduct thorough research and compare the loan offers by various lenders. Select a lender with lower interest rates.
- Before applying for loans online for bad credit, verify your eligibility to avoid having your loans online application rejected, which could further damage your credit score.
- Examine the terms and conditions of bad credit loans carefully to avoid unpleasant surprises later.
- Before you apply for a bad credit loan, determine your repayment capacity.
Which Lenders offer loans online for bad credit?
Secured loans are those that are made against collateral/security. If you have a low credit score, pledging collateral can assist you in obtaining a favourable loan rate. If, on the other hand, you lack collateral and are seeking unsecured loans, you may be eligible for a loan if your monthly earnings are above average and you work for a reputable company.
Banks will charge you a higher interest rate in these instances, and you may also be eligible for a smaller loan amount. For example, if your loan amount eligibility is approximately 80% to 90% under normal circumstances, it will be reduced to 65–70% due to your poor credit score. Additionally, you may be offered shorter repayment terms, as banks are motivated to collect the loan amount as quickly as possible.
Apart from banks, there are two additional options if you have a low credit score and need loans online for bad credit:
- Non-Bank Financial Institutions–
Numerous non-bank financial companies (NBFCs) will offer you loans online quick despite your low credit score, but at a slightly higher interest rate. Generally, NBFCs are more lenient with credit scores than banks. Several NBFCs have approved loans with credit scores as low as 360.
- Peer-to-Peer Lending
Certain lending websites, referred to as P2P websites, offer up to Rs. 5 lakh loans with terms ranging from 12 to 60 months to individuals with a low credit score.
Types of Bad Credit Loans
Several banks and financial institutions in India offer secured loans for people with bad credit. A secured loan is made in exchange for collateral, immovable property such as land or an apartment, or movable property such as a LIC endowment policy or gold. Failure to repay the loan will result in the loss of the property/asset, as the bank will be forced to sell it to recoup its losses.
Banks in India offer various types of bad credit loans. Some of these are:
- Mortgage Loans or Loans against Property:
These are loans obtained when a property is mortgaged. They can reclaim their property titles only after the loan is repaid. Certain banks allow for a second mortgage on the same property.
- Business Loans:
These loans are used to start or expand a business. Additionally, they can be used to sustain an existing business.
- Car Loans:
These loans are used to finance the purchase of a new vehicle. Bad credit car loans enable individuals with low credit scores to purchase their dream vehicle or even start small transportation businesses.
- Home Loans:
These loans are used to purchase a new home, renovate, or repair an existing one. Because home loans, like mortgage loans, are secured by real estate, they are less risky for banks because they can sell the property in the event of a borrower defaulting on repayment and recouping their money.
Loans Online for Bad Credit: How are they different from other loans?
- To obtain a loan, collateral must be provided
- These loans have low-interest rates, though not as low as those offered to borrowers with good credit scores
- The value of the pledged asset determines the loan amount
- The applicant may select between fixed and floating interest rates
- Individuals who are not compensated may also apply
- In comparison to an unsecured loan, the loans online instant approval process is significantly faster
Eligibility Criteria for Bad Credit Loans
- The applicant must be an Indian national
- They must be at least eighteen years old
- Certain banks require applicants to have a minimum annual income of Rs. 3 lakhs
- In the case of businesses, the establishment must have been in operation for a minimum of three years
- Applicants may be salaried, non-salaried, or self-employed
Factors to Consider when Seeking Loans Online for Bad Credit
A property or asset must be pledged as security for the loan. Failure to repay the loan results in the loss of the property or asset, as the bank will sell it to recoup their investment.
- Terms and Conditions:
It is critical to read the terms and conditions before agreeing to anything. It is recommended that an applicant consult a finance expert or an accountant, if necessary, to gain a better understanding of the loans online easy process.
- Loan Size:
The loan amount is directly related to the value of the collateral. Amounts over the value of the property cannot be obtained.
- Full Ownership:
The applicant must be the sole owner of the pledged property. Part ownership is insufficient.
- Rate of Interest:
The majority of banks offer a combination of floating and fixed interest rates. The EMI amount will remain constant throughout the fixed-rate tenure. During the floating rate period, the EMI amount will fluctuate due to market forces and other variables.
How to Get Instant Loans Online for Bad Credit
- Show that you are capable of paying the EMIs
Following the credit score, the lender will consider your income. One way to obtain loans online for bad credit is to demonstrate your eligibility and ability to make the EMI payments. If you can convince the lender that you have a regular and stable source of income, your chances of loans online instant approval increase.
- Make sure you have a co-signer or a guarantor
Loans for people with bad credit are also possible with the assistance of a co-signer or guarantor. Lenders will consider the co-credit signer’s score by applying with a co-signer, increasing your chances of approval. Similarly, obtaining a guarantor assures the lender that you will not default on your loan payments.
- Pledge collateral
Another safe way to obtain personal loans for people with bad credit is to pledge collateral. Collateral is similar to a guarantor, except that it is an asset attached to the loan. In non-payment, the lender has the right to sell and realize the collateral to recoup the loan amount.
- Loans should be renegotiated to a lower amount
If you have a low credit score, your chances of loans online instant approval are significantly reduced. Loans online for bad credit are possible, however, if you request a smaller loan amount. This further reduces the risk of borrower default by requiring the lender to make a smaller loan.
- Correct the errors on the credit report
Often, errors and omissions on the credit report can result in a low credit score, limiting credit opportunities. Once a year, check your free credit report online to see any errors or inaccuracies that you should report.
A bad credit loan can help individuals with low or no credit scores. Typically, these loans are secured, which means that individuals must provide collateral or security in the form of property, gold, or financial securities to obtain loans online easy. Analyse your financial situation and draw up a plan of repayment to make things easier going forward.