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What are the Best Loans for People Who Have Bad Credit Scores?

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Highlights

  • A bad credit score can shut the door for a personal loan - But you still have other loan options!
  • The options include taking a loan against fixed deposit, mutual funds, shares or even a life insurance policy - Read this post to know all these in detail

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!

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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.

BanksLoan AmountInterest 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 BankUpto 90% of the Value of Fixed Deposit2% above 2.50% - 6.25%
ICICI BankUpto 90% of the Value of Fixed Deposit, subject to a maximum of INR 5 Cr1% above 2.50% - 6.30%
Axis BankUpto 85% of the Value of Fixed Deposit2% above 2.50% - 6.05%
Bank of BarodaUpto 95% of the Value of Fixed Deposit1.75% above 2.90% - 6.30%
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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.

BanksLoan AmountInterest Rate (In Per Annum)Processing Fee
SBILoan Against Equity/Hybrid/ETF - Upto 50% of the investment value, subject to a maximum of INR 20,00,0009.75%0.75% of the loan amount, subject to a maximum of INR 50,000, plus GST
HDFC BankLoan 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 movement0.50%-1% of the sanctioned limit, subject to a minimum of INR 500-3,500, plus GST
ICICI BankLoan Against Equity Funds - Upto 50% of the NAV
Loan Against Debt Funds - Upto 80% of the NAV
It will depend on the market movementINR 3,500 + GST
Axis BankLoan 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 BankMinimum Loan Amount - INR 5 Lakh
Maximum Loan Amount - INR 20 Lakh
It will depend on the market movement0.50% 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.

BanksLoan AmountInterest Rate (In Per Annum)Processing Fee
SBIMinimum 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 BankUpto 50% of the present value of sharesIt will depend on the market movement0.50%-1% of the sanctioned limit, subject to a minimum of INR 500-3,500, plus GST
ICICI BankUpto 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 movementINR 3,500 + GST
Axis BankUpto 50% of the value of shares10.50%-12.75%0.15% of the sanctioned amount or INR 1,000, whichever is higher, plus GST
Kotak Mahindra BankUpto 50% of the value of sharesIt will depend on the market movement0.50% of the loan amount
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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.

BanksLoan AmountInterest Rate (In Per Annum)Processing Fee (In INR)
HDFC BankUpto 80% of the surrender value, subject to a minimum of INR 2 LakhCustomizedUpto 1% of the loan amount + applicable GST, subject to a minimum of INR 5,000
ICICI BankMinimum Loan Amount - INR 50,000
Maximum Loan Amount - INR 5 Crores
CustomizedINR 3,500 + Applicable GST
Axis BankUpto 85% of the surrender value10.50%-12.75%0.50% of the loan amount or INR 1,000, whichever is more, plus GST
Bank of BarodaUpto 80%-90% of the latest net surrender value of the insurance policy10.75%-11.25%As Applicable
Kotak Mahindra BankUpto 90% of the surrender value, subject to a minimum of INR 3 Lakh9.25%-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.

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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.

LendersInterest Rate (In Per Annum)Max. Loan QuantumMax. TenureProcessing Fee
State Bank of India (SBI)7.50%INR 20 Lakh, upto 65%-75% of the value of gold ornaments1-3 Years0.50% of the loan amount
Muthoot Finance12.00% - 27.00%No maximum limit1 YearUpto 1% of the loan amount
Manappuram Finance12.00% - 29.00%Upto 1.5 Crore3 MonthsAs applicable
Bank of Baroda9.75%Upto INR 25 Lakh1 Year0.50% of the loan amount, subject to a maximum of INR 3,500
ICICI Bank11.00% OnwardsUpto INR 15 Lakh1 Year1% of the loan amount
HDFC Bank10.05% - 17.95%From 10,000 onward2 Years1.50% of the loan amount
Axis Bank13.00%Upto INR 20 Lakh3 Years1% of the loan amount
Kotak Mahindra Bank10.50% - 24.00%Upto 65%-75% of the value of gold ornaments4 YearsUpto 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.

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Personal Loan Interest Rates October 2020
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.75% - 18.49%
IndusInd Bank11.25%
Kotak Bank10.99% - 20.99%
RBL17.50% - 24.00%
Standard Chartered Bank11.00% - 15.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates October 2020
Axis Bank7.75% - 8.55%
Bank of Baroda7.00% - 8.40%
Citibank8.20%
HDFC6.90% - 7.65%
ICICI Bank6.90% - 8.05%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank7.20% - 9.30%
LIC Housing6.90% - 7.90%
Piramal Capital & Housing Finance9.00% - 9.10%
PNB Housing Finance7.50% - 9.20%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI6.95% - 7.60%
Tata Capital9.20% - 9.35%