Last Updated on May 24, 2022 by Anjali Chourasiya

Availing a personal loan is probably the first thing that comes to your mind if you’re looking to address an emergency, upgrade your home office or renovate your house. And while a personal loan is often promoted as easy to secure, the process may not be smooth if you have a low credit score.

A personal loan is collateral-free, meaning the lender does not demand any property or financial asset as security when offering the loan. And sanctioning a personal loan to borrowers with a low credit score doesn’t make things better. That is why, lenders could either reject your application or charge a higher rate of interest on the loan. Simply put, the lender is trying to safeguard themselves from the risk of you defaulting on the loan.

However, as with everything else, you can work around this problem because a low credit score is not necessarily the final factor in your loan application process. There are various ways to secure a personal loan at reasonable interest rates despite having a bad credit score. Read on to find out how.

Correct any errors that may cause a bad credit score

Your score reflects any history of your credit card bill payments and shows whether you kept up with the deadlines for the equated monthly installments (EMIs) on any loans you may have taken in the past.

Credit scores generally range between 300 and 900. A score of 750 and above is considered good and makes it relatively easier to secure a personal loan.

Credit score generally ranges between 300 and 900. A score of 750 and above is considered good, anything lower makes it relatively difficult to secure a personal loan. Click To Tweet

However, there are occasions when the credit score may be incorrect and not be a true picture of your financial health. The latest repayments not updated and wrong information on outstanding loans are two of the likely reasons resulting in a bad credit score. When rectified, such material errors can increase your credit score. So raise a dispute with the credit bureau to get them corrected.

Ask for a lower loan amount

As mentioned, a personal loan is a collateral-free credit, and sanctioning it increases the lender’s risk. Ergo, in case you have a low credit score, consider applying for a lower loan amount to boost your chances of securing funds.

Offer to pledge collateral

Alternatively, you could also offer to pledge security for the debt you wish to take on. It safeguards the lender from default and thereby improves your chances of securing the loan.

Apply with a co-applicant or get a guarantor

If a bank refuses to lend you because of a bad credit score, you could consider re-applying for the loan with a co-applicant who has a better credit score than you. Another option is to get an acquaintance to sign on as a guarantor.

A guarantor is someone who agrees to take on the responsibility of repaying the loan amount if you default on your debt repayment. The co-applicant with a good credit score or the guarantor act as reassurance to the lender that the personal loan will be repaid, bolstering your chances of securing the loan despite a bad credit score.

When applying for a personal loan with a low credit score, getting a co-applicant or a guarantor increases your chances of approval. Click To Tweet

Show that your income can support EMIs

You can convince the lender that your income can support your equated monthly installments or EMIs. If you are expecting an increment soon, you can use this to your benefit. Let your lender know about the prospective rise in your income, and try to get that in writing from your workplace as well for proof.

Approach an NBFC or P2P lending platform

Borrowers who fail to secure a personal loan from a commercial bank could approach non-banking finance companies (NBFC) and peer-to-peer (P2P) lenders. NBFCs and P2P lenders are more flexible than banks when considering the eligibility of a prospective borrower. Thus, you still stand a good chance of securing a personal loan, but at a higher rate of interest.

If your loan is rejected on account of a low credit score, consider approaching an NBFC or a P2P platform. Their eligibility criteria of a potential borrower are more flexible and so your chances of getting a loan increase. Click To Tweet


As discussed above, there are various ways to secure a personal loan despite a bad credit score. However, in the long run, this may not be sustainable. The trade-off of securing a personal loan with a low credit score is that you get a less attractive deal than other borrowers with a healthier credit report. 

A monthly budget also helps break down your overall income so that you can keep a check on unnecessary expenses and avoid any unsustainable debt. In a nutshell, maintaining a monthly budget helps you practice financial discipline and avoid any bad decisions that could hurt your credit score and your peace of mind.

It is easy to maintain a good credit score by ensuring you pay EMIs on time and do not miss making any credit card bill payments. By preparing and sticking to a monthly budget, you can easily foresee and prepare in advance for any upcoming debt obligations.

Aradhana Gotur
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