How to Get a Personal Loan with a Bad Credit 2020?

25 Jan 2021

Worried over your bad credit? Don’t worry. Read this to find out the solution.

A personal loan is an easy way out for most of the people who want to get rid of the burden of debts or are in need of money for managing their emergency expenses. Although the personal loan is considered to be one of the easiest loans, it does have its own set of eligibility criteria and parameters which decide whether or not one will get the personal loan. Credit Score is one such parameter that is considered when you apply for a personal loan. It indicates how good you have been in repaying your credits. Different banks have different credit score range to decide the applicant’s credibility, and they offer different personal loan interest rate. It is always advisable to maintain a good credit score. It can be challenging to get the best personal loan approved if you have bad credit or no credit. On the other hand, having a good credit score is extremely beneficial not only for a personal loan but for other types of loans as well.

Bad Credit Score Impacts Personal Loan Interest Rate

Banks are really interested to know your credit score when you apply for the personal loan. From the credit score, the bank evaluates your creditworthiness. As mentioned above, the credit score is used to gauge your likelihood for loan repayment. Banks and financial institutions have decided a range for the same. The bad credit score starts from 650 and below. If the applicant falls in this range, then they are at higher risk. People having a bad credit score are considered prime candidates for a bad credit loan. There is a probability that the bank's personal loan interest rate will be higher or the loan application might get rejected altogether. Also, at times, people with bad credit may be offered personal loans with unfavorable or stringent terms and conditions as compared to the borrowers having excellent credit scores.

An important point to note here is that the parameter of good and bad credit score may vary from bank to bank but here is a generic scoreboard for your reference:

Credit Score

Chances of Loan Approval




Very good





Score under 620

Extremely poor

What are the reasons for bad credit?

You may get bad credit because of the following reasons-

  • Late or missed payments on your credit cards/loans
  • Foreclosure
  • Too many hard inquiries
  • Written off account

A bad credit gives an impression to the creditors that you are not good at managing your credits. Hence, they can be hesitant to approve your loan application or may even turn down those.

Where can you look for a personal loan with bad credit?

Has anyone told you it’s impossible to get a lender if you have bad credit? No way! You do have options!

The following financial institutions grant the personal loan in case you do not have a good credit score:

  • Credit Union

  • Banks

  • Online Lenders

Banks- The banking system has very stringent policies for loan approval. People with poor credit score don’t stand a chance to get the loan approved.

Credit unions- These are non-profit financial cooperatives owned by members. They don’t have as strict policies as the banks. They have fairly simple eligibility criteria and you might get a loan despite a low credit score. They also run programs for the borrowers with a low credit score. They are the best place to get a personal loan, especially if you have a poor credit history.

Online lenders- These have become a fairly popular medium of getting a personal loan. They are fast and don’t have lengthy paperwork and formalities, thus one gets the loan approved easily. The same is applicable even with people having a low credit score. However, an important point to note here is that these online lenders charge a hefty personal loan interest rate.

You must have a look at the APR or the Annual Payment Rate and repayment period offered by the banks so that you don’t fall prey to the trap of lucrative offers. An easy way to apply is that you must compare the personal loan interest rate and loan amount the bank is offering, and based on your requirement, you must choose the lender.

If you have a poor credit score, it is always advisable to first work on improving the credit score. This will not only help you in availing personal loan but other forms of the loan as well.

How to get the best personal loan with bad credit?

Improve your credit score

This is the first major step if you are not in an emergent need of the best personal loan.

Three factors in combination can account for almost 75% of your credit score. They are- low credit utilization, on-time payment and avoiding new credit applications.

Start making ‘on-dot’ payments (particularly, on your credit cards) and reduce the card balance to under 30 % of your allowed credit limit. Working on these lines can raise your credit score at least 100 within a span of 3 to 6 months.

Fix an interview with the loan officer of a lender

If you are in urgent need of the best personal loan, you can ask for an interview (in-person) with a credit union/bank loan officer so that you can convince him about your creditworthiness.

Go fully prepared for the interview with all documents that can support your stability and can help your cause. Some of such documents that can prove your creditworthiness are as follows-

  • IT returns for the last 2 years at least
  • Job history details with salary stubs
  • List of your assets( home, car, property etc)

If you do not have a good credit history, these and any other documents that can show that you have become more responsible in handling your money can be a plus.

Read More