In India, a low credit score can make obtaining a loan challenging, but several lenders are willing to work with people who have poor credit. These loans come with specific terms and higher interest rates, as lenders take on more risk when lending to low-credit borrowers.

This guide provides a breakdown of loan options available to people with bad credit in India, along with comparison tables and tips to help you find the best choice for your financial needs.

What is a Bad Credit Loan?

A bad credit loan is specifically designed for borrowers with low CIBIL scores (below 650). Many traditional banks in India are reluctant to provide loans to those with poor credit history, but NBFCs (Non-Banking Financial Companies) and some online lenders offer loan products tailored to such borrowers. However, the terms may include higher interest rates and, in some cases, collateral.

The most common types of loans available to borrowers with bad credit in India are:

• Personal Loans: Unsecured loans from banks and NBFCs with flexible use, often with higher interest rates for low-credit borrowers.
• Payday Loans: Short-term loans with quick approval but very high interest, which are not as common in India as in some Western countries.
• Secured Loans: Loans backed by collateral, like a fixed deposit or gold, to lower the lender’s risk.
• Credit-Builder Loans: Loans specifically designed to help improve your credit score.

Types of Loans for Bad Credit in India

Each loan type has specific benefits and drawbacks. Here’s an overview of the common options available in India:

Loan Type	Description	Pros	Cons
Personal Loans	Unsecured loans for various purposes, available through banks and NBFCs	Flexible usage, longer repayment terms	Higher interest rates, often requires stable income
Payday Loans	Small, short-term loans with high interest; less common in India	Fast approval	Very high fees, risk of debt cycle
Secured Loans	Loans backed by collateral, like fixed deposits, gold, or property	Lower interest rates, higher approval chance	Risk of losing collateral if unable to repay
Credit-Builder Loans	Designed to improve credit scores, typically available through NBFCs	Helps build credit, easy to obtain	Smaller loan amounts, requires regular repayments

Personal Loans for Bad Credit

In India, personal loans for individuals with bad credit are often unsecured and come with higher interest rates. These loans can be accessed through NBFCs and online lending platforms, which tend to be more flexible than traditional banks in terms of eligibility.

Pros and Cons of Personal Loans for Bad Credit

Pros	Cons
Flexible usage for various needs	Higher interest rates
Fixed monthly payments	May require a co-signer
Longer repayment periods	Potential impact on credit score if not paid on time

Recommended Lenders for Personal Loans with Bad Credit in India

1. Bajaj Finserv: Offers personal loans for low-credit borrowers, with flexible terms and loan amounts up to ₹25 lakh.
2. PaySense: A popular platform for quick personal loans with minimum documentation and a straightforward online application process.
3. Home Credit India: Provides loans to individuals with low credit scores and also helps build credit history with responsible repayment.

Gold Loans

In India, gold loans are one of the most accessible types of secured loans, as many households possess gold. These loans require the borrower to pledge gold, which the lender holds as collateral. Gold loans typically come with lower interest rates compared to unsecured loans and are available through both banks and NBFCs.

Pros and Cons of Gold Loans

Pros	Cons
Lower interest rates	Risk of losing gold if not repaid
Quick approval, easy eligibility	Valuation of gold may affect loan amount
No credit score requirement	Shorter repayment tenure in some cases

Popular Gold Loan Providers in India

1. Muthoot Finance: A leading provider in the gold loan segment with flexible repayment options.
2. Manappuram Finance: Offers competitive interest rates and fast processing for gold loans.
3. HDFC Bank: Provides gold loans with a quick disbursal process and transparent terms.

Secured Loans for Bad Credit

For individuals with bad credit, secured loans backed by assets like property, fixed deposits, or vehicles offer a more accessible option. With collateral, lenders are more willing to offer better interest rates, even to those with low credit scores.

Pros and Cons of Secured Loans

Pros	Cons
Lower interest rates	Risk of losing collateral if unable to repay
Higher chance of approval	Requires ownership of valuable assets
Flexible loan amounts	Potential for a lengthy application process

Ideal for

Secured loans are well-suited for individuals who need higher loan amounts and have valuable assets they can pledge as collateral. They are commonly used for larger expenses such as education, business investments, or medical emergencies.

Payday Loans

Payday loans are not as common in India as in other countries, but several fintech platforms offer similar options for salaried employees. Payday loans are short-term loans meant to cover expenses until the borrower’s next payday, but they often come with high fees and short repayment windows.

Pros and Cons of Payday Loans

Pros	Cons
Quick approval	High interest rates and fees
Minimal credit score requirements	Risk of debt cycle
Accessible to salaried individuals	Short repayment period

When to Consider a Payday Loan

Consider payday loans only as a last resort, for emergencies when no other options are available. It’s crucial to ensure you can repay the loan on time to avoid the high fees and interest that can lead to a debt cycle.

Credit-Builder Loans

Credit-builder loans are ideal for individuals who wish to improve their credit scores over time. Instead of receiving funds immediately, the borrower makes regular payments to the lender, which are reported to credit bureaus. Upon completion, the borrower receives the accumulated amount (minus any fees).

Pros and Cons of Credit-Builder Loans

Pros	Cons
Helps improve credit over time	Limited loan amounts
Suitable for those building a credit history	May have fees associated with the account
Often available through NBFCs	Funds are only accessible after loan completion

Ideal Situations for Credit-Builder Loans

Credit-builder loans are suitable for individuals new to credit or those with low scores looking to rebuild their credit history. They are available through select NBFCs and online platforms.

Loan for Bad Credit in India – Table

Loan Type	Interest Rates	Loan Amounts	Approval Time	Repayment Period	Best For
Personal Loans	Moderate to high	₹10,000 – ₹25 lakh	1-7 days	1 – 5 years	Debt consolidation, larger expenses
Gold Loans	Low to moderate	Depends on gold value	Same day	6 months – 3 years	Short-term needs, individuals with gold assets
Secured Loans	Low to moderate	₹50,000 – ₹50 lakh+	1-7 days	Varies (1 – 7+ years)	Large amounts, individuals with collateral
Payday Loans	High	₹5,000 – ₹50,000	Same day	1 month or next payday	Emergencies, salaried individuals
Credit-Builder Loans	Low	₹10,000 – ₹1 lakh	1-7 days	6 months – 2 years	Building credit history

Tips for Getting a Loan with Bad Credit in India

If you’re in need of a loan but have a low credit score, here are some ways to improve your chances:

1. Choose Secured Loans or Gold Loans: Pledging collateral can help secure better rates and improve approval chances.
2. Use a Co-Signer: Some lenders accept co-signers with better credit scores, which can increase approval odds.
3. Check Your Credit Report: Errors on your credit report can negatively impact your score. Checking and rectifying any mistakes can make a difference.
4. Consider Credit-Builder Loans: These loans are specifically designed to help improve your credit score over time.

Our Recommendation

Getting a loan with bad credit in India is challenging but not impossible. Options like personal loans from NBFCs, gold loans, and secured loans offer opportunities for individuals with low credit scores to access funds when needed.

Each loan type has its pros and cons, so it’s essential to consider factors like interest rates, repayment periods, and collateral requirements before making a decision. By choosing the right loan and focusing on rebuilding your credit, you can work towards a stronger financial future in India.