What are the Best Loans for People Who Have Bad Credit Scores?
Last Updated : Aug. 12, 2020, 2:51 p.m.
A credit score is a three digit number ranging from 300 to 900 in India and tells greatly about your creditworthiness. The way you manage loan or credit card payments will determine the score you will eventually get from credit bureaus such as CIBIL , Experian , etc. If you have a credit score of 700 and beyond, it will be viewed as good. Whereas, a score of 750 and beyond will almost seal the case for you with acceptance to your fresh loan or credit card application remaining more of a formality. It means you have paid your existing or past debts on time for long. However, if your score is below 600, it is bad and almost shuts the door of any unsecured loan for you! A poor score is a result of non-payment of dues for long. An unsecured loan like a personal loan carries a high risk for lenders as they do not have the security to fall back on in case you default on payments. That’s why lenders remain wary of disbursing fresh unsecured loans in case someone has defaulted on loan payments in the past. In case you are denied a personal loan because of a poor credit score , you can take any of the following loans and meet your requirements. So, read on!
Loan Against Fixed Deposit
You can take a loan against a fixed deposit at affordable interest rates and meet your needs. The interest rate on this type of loan is 1%-2% above the interest rate applicable to the fixed deposit. The loan will be a certain percentage of the fixed deposit, somewhere around 80%-90% of the deposit amount. The best part is that you don’t need to pay any processing fee to get this loan. Check out the table below to know the loan against fixed deposit offers of the following banks.
| Banks | Loan Amount | Interest Rate (In Per Annum) |
|---|---|---|
| State Bank of India (SBI) |
Upto 90% of the Value of Fixed Deposit
Minimum - INR 25,000 Maximum - INR 5 Crore |
1% above 2.90% - 6.20% |
| HDFC Bank | Upto 90% of the Value of Fixed Deposit | 2% above 2.50% - 6.25% |
| ICICI Bank | Upto 90% of the Value of Fixed Deposit, subject to a maximum of INR 5 Cr | 1% above 2.50% - 6.30% |
| Axis Bank | Upto 85% of the Value of Fixed Deposit | 2% above 2.50% - 6.50% |
| Bank of Baroda | Upto 95% of the Value of Fixed Deposit | 1.75% above 2.90% - 6.30% |
Loan Against Mutual Funds
If you have invested in mutual funds, you can take a loan against the same too. Now, mutual funds can be of many types – equity, debt, hybrid, etc. Depending on the type of mutual fund you have, the loan eligibility will differ. Let’s check out the table below to know the loan offers of different lenders.
| Banks | Loan Amount | Interest Rate (In Per Annum) | Processing Fee |
|---|---|---|---|
| SBI | Loan Against Equity/Hybrid/ETF - Upto 50% of the investment value, subject to a maximum of INR 20,00,000 | 9.75% | 0.75% of the loan amount, subject to a maximum of INR 50,000, plus GST |
| HDFC Bank |
Loan Against Equity Funds - Upto 50% of the Net Asset Value (NAV)
Loan Against Debt Funds/FMPs - Upto 80% of the NAV |
It will depend on the market movement | 0.50%-1% of the sanctioned limit, subject to a minimum of INR 500-3,500, plus GST |
| ICICI Bank |
Loan Against Equity Funds - Upto 50% of the NAV
Loan Against Debt Funds - Upto 80% of the NAV |
It will depend on the market movement | INR 3,500 + GST |
| Axis Bank |
Loan Against Equity Funds - Upto 60% of the NAV
Loan Against Debt Funds - Upto 85% of the NAV |
10.50%-12.75% | 0.15% of the sanctioned amount or INR 1,000, whichever is higher, plus GST |
| Kotak Mahindra Bank |
Minimum Loan Amount - INR 5 Lakh
Maximum Loan Amount - INR 20 Lakh |
It will depend on the market movement | 0.50% of the loan amount |
Loan Against Shares
Like fixed deposits and mutual funds, even shares can grant you a loan. The loan offering in this case is very much like the equity mutual funds. Check out the table below to know how the offer stacks up for you.
| Banks | Loan Amount | Interest Rate (In Per Annum) | Processing Fee |
|---|---|---|---|
| SBI |
Minimum Loan Amount - INR 50,000
Maximum Loan Amount - INR 20,00,000 |
9.75% | 0.75% of the loan amount, subject to a maximum of INR 50,000, plus GST |
| HDFC Bank | Upto 50% of the present value of shares | It will depend on the market movement | 0.50%-1% of the sanctioned limit, subject to a minimum of INR 500-3,500, plus GST |
| ICICI Bank |
Upto 50% of the present value of shares
Minimum Loan Amount - INR 50,000 Maximum Loan Amount - INR 20,00,000 |
It will depend on the market movement | INR 3,500 + GST |
| Axis Bank | Upto 50% of the value of shares | 10.50%-12.75% | 0.15% of the sanctioned amount or INR 1,000, whichever is higher, plus GST |
| Kotak Mahindra Bank | Upto 50% of the value of shares | It will depend on the market movement | 0.50% of the loan amount |
Loan Against Life Insurance Policy
You can also get a loan against life insurance policies . But the loan is granted only against traditional insurance plans, including money plan, endowment plan, etc, having a surrender value, and not against term insurance plans. The table below shows the offers of loan against the life insurance policy provided by different lenders.
| Banks | Loan Amount | Interest Rate (In Per Annum) | Processing Fee (In INR) |
|---|---|---|---|
| HDFC Bank | Upto 80% of the surrender value, subject to a minimum of INR 2 Lakh | Customized | Upto 1% of the loan amount + applicable GST, subject to a minimum of INR 5,000 |
| ICICI Bank |
Minimum Loan Amount - INR 50,000
Maximum Loan Amount - INR 5 Crores |
Customized | INR 3,500 + Applicable GST |
| Axis Bank | Upto 85% of the surrender value | 10.50%-12.75% | 0.50% of the loan amount or INR 1,000, whichever is more, plus GST |
| Bank of Baroda | Upto 80%-90% of the latest net surrender value of the insurance policy | 10.75%-11.25% | As Applicable |
| Kotak Mahindra Bank | Upto 90% of the surrender value, subject to a minimum of INR 3 Lakh | 9.25%-13% | 2% of the loan amount + Applicable GST |
The timely payment of loans granted fixed deposits, mutual funds, shares and life insurance policy will help improve your credit score over time, making you eligible for unsecured loans. All you need to do is submit the said security to the lender and get a loan from it to meet your needs. What also needs to be noted though is that these loans may either come in a term loan or an overdraft. A term loan will have monthly installments for the period you choose to pay it. Whereas, an overdraft will be sanctioned and the interest will apply only on the utilized amount. A current account will be created where the overdraft limit will be there. Whatever you utilize, the interest will be charged on the same. You can pay for the amount withdrawn by depositing money into that current account.
Gold Loan
Your precious gold ornaments can also secure you a loan in case your credit score is bad. You just need to submit your gold ornaments and bank-minted gold coins to the lender and get a loan against the same. As gold prices are surging these days, maybe it’s the right time to take a gold loan . Check out the table below to know the gold loan offers of several lenders.
| Lenders | Interest Rate (In Per Annum) | Max. Loan Quantum | Max. Tenure | Processing Fee |
|---|---|---|---|---|
| State Bank of India (SBI) | 7.50% | INR 20 Lakh, upto 65%-75% of the value of gold ornaments | 1-3 Years | 0.50% of the loan amount |
| Muthoot Finance | 12.00% - 27.00% | No maximum limit | 1 Year | Upto 1% of the loan amount |
| Manappuram Finance | 12.00% - 29.00% | Upto 1.5 Crore | 3 Months | As applicable |
| Bank of Baroda | 7.45% - 8.20% | Upto INR 25 Lakh | 1 Year | 0.50% of the loan amount, subject to a maximum of INR 3,500 |
| ICICI Bank | 10.00% - 19.76% | Upto INR 15 Lakh | 1 Year | 1% of the loan amount |
| HDFC Bank | 9.50% - 17.55% | From 10,000 onward | 2 Years | 1.50% of the loan amount |
| Axis Bank | 13.00% | Upto INR 20 Lakh | 3 Years | 1% of the loan amount |
| Kotak Mahindra Bank | 10.50% - 17.00% | Upto 65%-75% of the value of gold ornaments | 4 Years | Upto 2% of the loan amount |
The Option of Small-ticket Loans is Always There
Small ticket loans such as consumer durable loans don’t have stringent credit norms that a personal loan will have. In case your credit history is bad and you need consumer durables, you can take this loan to buy the same. Just pay your loan dues on time and get your credit score back on track. Ensure you choose a year or more to service the loan. The reason being the credit bureau would like to see your strong debt management skills for a reasonable period before assigning you a good credit score.