How to get loans even with a low credit score - The Economic Times https://economictimes.indiatimes.com/wealth/borrow/how-to-get-loans-...

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How to get loans even with a low credit score

BY CHANDRALEKHA MUKERJI, ET BUREAU | UPDATED: JAN 04, 2016, 07.49 PM IST Post a Comment

Last week there were two good news for borrowers. One that banks and NBFCs have
started sanctioning bigger home loans (over Rs 1 crore) for as long as 30 years tenure.
This is for the first time since the credit crisis. These loans will specifically target the young
salaried individuals in the age group of 25-30 who are at the early stages of careers and
have high aspirations and as well as earning potentials.

The second good news was that April onwards, thanks to the new lending base rate
calculation formula, banks will be quicker to pass on any rate cuts to borrowers. However,
these are good news only if you have a good credit history . Banks would neither lend you
high amounts nor will you be able to switch lenders and take advantage of a rate cut if you
have a poor credit score.
Here is how to negotiate the best credit deal in case
you have a score below 750.
So what do you do if you do not have a good credit score and need cash? What's the best
deal you can get? What is the maximum amount and tenure the banks will offer you? Is
Big Change:
there a way you can benefit from the rate cuts as well? The end of Five-Year Plans: All you need to know

Here is how to negotiate the best credit deal in case you have a score below 750.

The deal

CIBIL data says 80 per cent of the loans that get approved have a score above 750.However, credit score is not the only parameter
which lenders look at for approval and deciding the interest rates.

The difference in the interest rate paid by someone will vary depending on the product (secured or unsecured loan), size of the credit
and the payback tenure. The difference will be bigger in case of unsecured loans than secured loans. "Someone with lower credit score
can avail secured loans like a home loan at interest rate ranging anywhere between 11.50 per cent and 18 per cent. The rate may jump
a little (between 13 per cent-18 per cent) fors loan against property . The rate of interest on unsecured loans can range anywhere
between 18 per cent and 26 per cent," says Naveen Kukreja, MD, Paisabazaar.com.

Your income source and employer also makes a difference. For instance, even a mainstream bank like HDFC may overlook a credit
card default in the past if, say, you are right now work for a big MNC.

However, you will still have to pay a slightly higher rate than someone with a good score. "You may have to pay 1114 per cent interest
rather than the usual 9.259.5 per cent for a home loan. However, in addition to the credit default, say, the person doesn't have a stable
income and are self-employed, the rate can go up to 19 per cent and you will have to approach an NBFC," says Ranjit Punja, CEO,
CreditMantri, a credit management and improvement company .

In worst case, the lender may reduce the loan to value ratio, or LTV , to keep the risk minimum. "While someone with a high score (750-
plus) can get 8090 per cent of the of the value of the home as loan, someone with a low score (below 600) would probably get only 65
per cent of the value of the property as loan," says Punja.

It is important note here that a person with no credit history will be treated differently from a person with credits defaults as the reason of
poor score.

"If your score is low because of default then chances of getting a loan is lower. But if the score is low because of less amount of loan
taken or because credit history is relatively recent then you can still get the loan," points out Harsh Roongta, CEO, ApnaPaisa.com.

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How to get loans even with a low credit score - The Economic Times https://economictimes.indiatimes.com/wealth/borrow/how-to-get-loans-...

NOTE: The cut-off rates are indicative and the lender can make exceptions in certain cases.

Your options

Typically, non-banking financial Institutions (NBFCs) are more flexible with credit scores and the cut-offs than banks (see box). "NBFCs
have disbursed loans for a credit score as low as 360," says Kukreja. But they also charge a higher rate than banks.

If you have any asset, use then as collateral to get lower rates. Insurance policies may not get you a very good deal. Besides your cover
may not be big enough to get you a decent loan. "You will usually get up to 70 per cent of the premiums paid," says Punja. However,
lenders do take loan protector policies, such as, home loan insurance into consideration while sanctioning such loans. "Gold loans or or
loan against property are better options," says Adhil Shetty, cofounder and CEO, bankbazaar.com.

Peer-to-peer, or, P2P, lending websites can also be an option to get a loan if you have a low credit score. These sites provide small
personal loans of up to Rs 5 lakh for tenures ranging from 12 to 36 months. You can get these loans without any collateral at 12 to 24
per cent, depending on how much you can negotiate."Although the profiles with low credit score are scrutinised under strict process
there are a better chances of not only getting funded but to get much lower interest rate," says Rajat Gandhi, founder and CEO,
Faircent.com, a P2P lending platform. The lending sites categorise borrowers under different risk brackets, where 50 per cent weightage
is given to the CIBIL data. Someone with a 750-plus score is considered low-risk, borrowers with score between 650 to 750 generally lie
in the medium risk bucket, while borrowers with no score and with score of less than 650 would fall under high risk.However, as
mentioned earlier, credit score is just 50 per cent. The lending platforms also assess banking and social behaviour of the borrower
through LinkedIn and Facebook, current repayments, monthly obligation of the borrower, soft data like family details, residence and
office stability. "These additional parameters can bring a borrower from high risk bucket to medium risk bucket and give more negotiating
power," says Gandhi.

How to negotiate

Don't go to a mainstream bank if your score is below 650. This will have further negative effect on your score.Every time you make a
loan enquiry , lenders will pull out your credit report and all these requests get registered.Too many enquiries within a short time can has
a negative effect on the score as well as makes lenders skeptical. Start with a good NBFC rather. "NBFCs target business is the
segment that mainstream banks won't entertain. You have better chances of cracking a deal with them," says Punja.

If the reason for your low score is a default, it is a good idea to explain the lender why you defaulted. Lenders don't like to see a willful
default. So, as long as the reason is, say , you lost your job. Or there was emergency , a hospitalisation, for which you borrowed and
couldn't afford to pay back. "If your reasons were genuine, the lenders sometimes are willing to excuse and offer a lower rate," says
Punja. However, make sure all your other credentials are in order . "You should have a stable job in a top-rated company , keep all your

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How to get loans even with a low credit score - The Economic Times https://economictimes.indiatimes.com/wealth/borrow/how-to-get-loans-...

ITRs in order . They might prefer a candidate who has been living at your current residence for at least 2 years," says Punja. It helps if
the default is at least 24 months old and you are applying for a secured loan. If you are looking for an unsecured loan like a personal
loan some banks, on mandate, want you to have an existing relationship with them. If you have had a healthy relation hip, it will help you
negotiate better.

You can get help too

If you are confused whom to approach, here are dedicated credit management and improvement services who main ain databases of
lenders and their erms and conditions of lending. They can help you find the best match.

If you are not in a hurry and have 6 to 7 months before you want the loan, there are some quick ways to improve your core too. Some
banks like ICICI and DCB offer special products like secured credit cards against deposits. They do not look at your score or income and
your credit limit is based on the deposit you make. Once you start using this card and make repayments on time, your score improves
gradually.Another way is to try and get a small consumer durable loan.

"It typically takes about 4 to 6 months or someone with a credit score of 650 to each a score of 750-plus. If you are at 500-550, it will
take about 8 to 12 months," says Punja.

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