Getting a loan with a low credit score: what to expect and what to avoid

What lenders see

When your score is low, a lender wonders whether you will repay. Banks generally have stricter cut-offs and may decline outright. Some non-bank finance companies (NBFCs) are more flexible, but they price the extra risk into the rate. Each lender sets its own rules, so a rejection from one is not a verdict from all.

Beyond the score, lenders look at your income, how stable it is, your existing loans and the amount you want. A steady salary and a modest loan request improve your chances more than most people expect.

Realistic options

• A secured loan: borrowing against a fixed deposit, gold or property lowers the lender's risk, so approval is easier and the rate lower than an unsecured loan.
• A smaller amount or a shorter tenure: asking for less makes approval more likely.
• A co-applicant or guarantor with a stronger profile, who will share responsibility for the loan.
• An NBFC or a lender that specialises in your segment, keeping in mind the higher cost.
• A credit-builder route first: a secured credit card or a small loan repaid on time, if you can wait.

Warning signs to avoid

Weak credit makes people vulnerable to bad actors. Be careful with anyone who asks for money before releasing a loan, promises approval with no checks, pushes you to decide quickly, or contacts you through unsolicited messages.

• Upfront "processing" or "insurance" fees paid before the loan is disbursed.
• Lenders that are not registered with the RBI. Banks and registered NBFCs are on the RBI's lists; check before you share documents.
• Loan apps that demand access to your contacts, photos or messages, which is a common sign of abusive recovery practices.
• Terms that are unclear: no written agreement, a hidden or very high effective rate, or fees that are not disclosed upfront.

Keep the cost in view

A high-cost loan can deepen the problem it was meant to solve. Compare the total amount you will repay, not just the EMI, and make sure the payment fits comfortably in your budget even if your income dips. Ask for the effective annual rate, and check for prepayment charges so you can clear the loan early once your finances improve.

Do not apply everywhere at once

Each application leaves a hard enquiry on your report, and many in a short time lower your score further. Use the Find My Loan tool to see which loans you are realistically likely to be approved for, then apply to one or two lenders rather than many.

This is general information, not personal financial advice. If you are struggling with repayment, talk to your lender early; many have hardship options, and free credit counselling is available through the RBI-supported credit counselling centres.