How to qualify for a loan with bad credit?

If your loan application was rejected due to a low credit score, you are not alone. Thousands of borrowers in India struggle to qualify for a loan with bad credit every year. A low CIBIL score can make lenders cautious, but it does not mean funding is impossible.

The key is understanding how lenders assess risk and positioning your application strategically. At Saarathi.ai, we have observed that borrowers with credit scores below 650 still secure approvals when they choose the right lender category, improve documentation, and avoid multiple random applications.

In this guide, we explain practical, realistic steps to qualify for a loan with bad credit in India and how to increase your chances of approval.

What Is Considered Bad Credit in India?

Most lenders evaluate credit scores from TransUnion CIBIL.

Typical score ranges:

• 750 and above: Excellent

• 700 to 749: Good

• 650 to 699: Fair

• Below 650: Poor
  
  
  

A score below 650 is generally considered risky for unsecured loans like personal loans or credit cards.

However, approval depends on more than just the score.

Why Lenders Reject Low Credit Applications

Under guidelines influenced by the Reserve Bank of India, lenders must maintain asset quality and control NPAs.

If you have:

• Missed EMIs

• Loan settlements

• High credit utilization

• Multiple loan inquiries
  
  
  

Your profile appears high risk.

But here is the important point: lenders also look at current financial strength, not just past mistakes.

Can You Get a Loan with Bad Credit? Yes, If You Plan Smartly

At Saarathi.ai, we have seen approvals in cases where borrowers:

• Show stable income

• Reduce existing debt before applying

• Choose NBFCs or secured options

• Add a co-applicant

• Use AI-based eligibility checks
  
  
  

Let us break down how you can qualify.

Step-by-Step: How to Qualify for a Loan with Bad Credit

1. Check Your Credit Report First

Before applying anywhere, download your latest credit report.

Look for:

• Incorrect entries

• Closed loans marked as active

• Wrong payment history
  
  
  

If errors exist, raise disputes immediately.

Even small corrections can improve your score.

2. Reduce Your Credit Utilization

If your credit card limit is Rs 1 lakh and you use Rs 90,000, your utilization is 90 percent. That signals financial stress.

Try to keep utilization below 30 percent before applying.

This can improve lender perception quickly.

3. Apply for Secured Loans

Secured loans have higher approval chances because they reduce lender risk.

Options include:

• Loan against property

• Gold loan

• Fixed deposit backed loan
  
  
  

Since collateral is available, lenders are more flexible with credit scores.

You can compare secured loan options on Saarathi.ai to find suitable offers digitally.

4. Add a Strong Co-Applicant

If your spouse, parent, or business partner has a strong credit profile, adding them as a co-applicant improves approval probability.

This reduces lender risk and may lower interest rate.

5. Show Strong Income Stability

Even with bad credit, lenders consider:

• Monthly income

• Employer reputation

• Job stability

• Business turnover
  
  
  

If you are salaried in a reputed company, your chances improve.

If self-employed, consistent GST and bank statements matter.

At Saarathi.ai, our AI Recommendation Engine matches borrowers with lenders who focus more on income stability than past credit issues.

6. Choose NBFCs Carefully

NBFCs often cater to higher-risk segments. According to industry analysis by CRISIL, NBFCs play a key role in expanding credit access to underserved borrowers.

However:

• Interest rates may be higher

• Tenure may be shorter
  
  
  

Using a digital marketplace helps compare rates transparently.

Instead of applying randomly, compare personalized offers on Saarathi.ai and avoid unnecessary credit score impact.

7. Start Small

If your score is very low, consider applying for a smaller loan amount first.

Once repaid successfully, your credit profile improves, making larger loans easier in future.

8. Avoid Multiple Hard Inquiries

Every time you apply directly to a lender, a hard inquiry may be recorded.

Too many inquiries:

• Reduce your score

• Signal credit hunger
  
  
  

Use a unified platform like Saarathi.ai to check eligibility without multiple hard pulls.

You can also ask eligibility questions via Saarathi AI before submitting a full application.

Interest Rates for Loans with Bad Credit

Expect higher interest rates compared to prime borrowers.

Typical ranges:

• Unsecured personal loan: Higher risk pricing

• Secured loan: Lower than unsecured

• Gold loan: Among lowest secured options
  
  
  

Interest rate depends on:

• Credit score

• Income

• Employer category

• Existing EMIs

• Loan amount
  
  
  

The key is comparing effective cost, not just headline rate.

How Long Does It Take to Improve a Bad Credit Score?

If you:

• Pay all EMIs on time

• Clear overdue accounts

• Avoid new credit

• Reduce card usage
  
  
  

You may see improvement within 3 to 6 months.

Major improvements may take 9 to 12 months depending on past defaults.

Common Mistakes to Avoid

• Applying to 5 to 10 lenders at once

• Ignoring credit report errors

• Taking informal high-interest loans

• Hiding existing liabilities

• Opting for loan settlements instead of full repayment
  
  
  

Loan settlements severely damage your future borrowing capacity.

Example Scenario

Borrower A:

• Credit score 620

• Stable job

• EMI to income ratio 35 percent

• Applies via digital marketplace
  
  
  

Borrower B:

• Credit score 620

• Multiple recent inquiries

• High credit card usage

• Applies randomly
  
  
  

Borrower A has significantly higher approval probability.

Planning matters more than panic applications.

Why Saarathi.ai Helps Borrowers with Bad Credit

At Saarathi.ai, we connect you with 110 plus lenders including banks and NBFCs.

Benefits include:

• AI-based lender matching

• Paperless application journey

• Transparent interest comparison

• Centralized tracking through Saarathi Bazaar

• Faster approvals
  
  
  

At Saarathi.ai, we have observed that borrowers who use AI-driven matching instead of random applications reduce rejection rates significantly.

You can compare loan offers on Saarathi.ai and see which lenders are more suitable for your profile before committing.

FAQs

1. What is the minimum credit score required for a personal loan?

Most banks prefer 700 plus, but some NBFCs may consider lower scores based on income stability.

2. Can I get a loan if I had past defaults?

Yes, but you may need to clear dues first or opt for secured loans.

3. Does checking eligibility reduce my credit score?

Soft eligibility checks do not impact your score. Multiple hard applications can.

4. Is a gold loan easier to get with bad credit?

Yes, because it is secured against gold collateral.

5. Should I wait or apply immediately?

If your score is improving and you can wait 3 to 6 months, approval chances and rates may improve.

Conclusion: Bad Credit Is Not the End

Qualifying for a loan with bad credit is possible if you:

• Correct your credit report errors

• Reduce existing debt and utilization

• Choose secured or NBFC options wisely

• Avoid multiple applications

• Use AI-based lender matching

Instead of risking further rejection, discover personalized loan options on Saarathi.ai today. Compare offers, check eligibility instantly, and take control of your financial journey with confidence.