When you have a low credit score, it means you are risky as a customer, and banks are not willing to give you a loan. A credit score is mainly based on the manner you have organized or your previous debts, or any default in the payment of your loans.
Non-guarantor loans are generally aimed at people with poor or bad credit scores who don’t have a guarantor. So, most of these loans are the type of loans only between the borrower and the lender. These are mostly termed risky ones as neither do they have any collateral or security, nor do they have any guarantor to pay for the amount in case of any default.
Anyone in need of urgent cash to cover the unexpected expenses can look to a payday loan or cash advance apps to find the short loans they need. It is the easiest loan to get with a bad credit score because it typically uses your paycheck or Back account to approve the loan.
Why do you have a low credit score?
- You would have missed paying some or any of your bill
- Repayments have not been made on time
- You might have no financial record as you might not have taken any loan before
- The application has been rejected many times
- Not having an AI-driven credit management system in place for better management
Some of the measures taken for availing the benefit of non-guarantor loans are as follows:
- Show sufficient income
- Apply with a co-applicant
- Lowering of the loan amount
- Seeking alternate lenders
- Improving credit score
If you have a low score and still need a personal loan, you can find some lenders willing to lend you money, but they may charge higher rates of interest.
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Are options available to a person with a bad credit score?
Secured credit
The best option for an individual with a low or bad credit score is to undertake collateral in the form of a gold loan, loan against property, secured credit cards, etc. Such loans and credit cards are called secured credit, and here the bank’s risk is minimized.
It might sound tough to get home loans or vehicle loans, but all the other loans are quite possible. Banks may provide more flexibility in terms of the interest rate. You will get a loan of 60% to 70% of the collateral value.
Similarly, secured credit cards also follow the same principle of secured loans. The credit limit will be 60% to 70% of the value of security pledged. The benefits of the cards will vary between secured and unsecured cards, but in fact, that is not the case. In fact, you will get lesser interest than an unsecured credit card. The secured credit cards are generally given against FDs (fixed deposits).
Unsecured credit
If the search is for unsecured loans, i.e., not fronting any collateral, then there is a need to have a good income from some known company.
The biggest challenge is unattractive interest rates. Banks consider the risks in giving you an unsecured loan, and a higher interest rate might be demanded. In selected cases, the banks may reduce the loan amount.
Your loan tenure will also be shorter as banks will look to collect the loan as quickly as possible.
Alternate lending
There are 3 options apart from banks that a person with bad credit can try.
- NBFC –
There are some NBFC who provide loans for people with bad credit. They will charge a little bit higher interest rate. But there are some best NBFC companies like Money View who are offering View personal loans for low CIBIL score applicants with the best competitive rates.
- Peer to peer (p2p) –
There are some websites offering peer to peer (p2p) loans up to a maximum of 5 lakhs for tenures ranging from 12 – 36 months.
- App-based lending –
With digital technology spreading its arms in the market, many start-up institutions have emerged that provide short-term credit based on salary, which is a good way to improve your credit score. Though these have comparatively higher interest rates, it is worth taking if your score is very low, especially if it is your only option.
Conclusion:
Summarizing, we can say that the financial market and institutions provide credit to individuals with a low or bad credit score, but the rate of interest is generally high. With a little bit of appropriate research, such individuals can avail loans/ funds to meet their necessary as well as luxury requirements.