1. Where can I determine my credit score?
The Reserve Bank of India have licensed 4 companies for checking credit score :
☞ The Credit Information Bureau (India) Limited (CIBIL)
2. Credit Scores That Indicate Bad Credit
The credit scores range from 300 to 900. Traditionally, individuals with credit score with 624 or bellow have bad credit. Credit score of 625 to 699 are labelled fair, not all the financial institution accept cases between these score considering the risk of repayment high. Credit score of 700 to 749 are labelled as good. Only 10%-15% of lenders do not accept the cases considering the reason of non-repayment if any or in case no loan taken ever Credit score of 750 to 900 are labelled as excellent every financial institution want this score as the borrower has never missed any repayment.
3. When should you consider applying for a bad credit loan?
You will choose a bad credit loan when you don’t have any other options left. If you absolutely must borrow, don’t fall for a bad credit loan.
You should consider applying for a bad credit loan only if:
☞ You can realistically take a loan and pay it back and in the process improve your credit score.
☞ There is no way to manage your finances without a loan.
☞ You want to manage your entire debt and make it one big debt or extend period of repayment or lower your interest rate.
☞ You have already taken a bad credit loan, then don’t take any more loans or anything else on credit.
☞ You are absolutely sure and have planned out your finances and are sure that you won’t default on the repayments. Also plan for early repayment so as to pay off your loan as soon as possible. This is possible when you know extra money is going to come in your way.
Do proper research before taking a bad credit loan. You need to look for:
☞ The lowest interest rate that you can get.
☞ Before applying for a loan, make sure you that you can get it without being rejected, otherwise it will only further harm your credit score.
☞ Get a realistic idea of the actual rates you will get and make the correct application.
4. What is the difference between secured and unsecured loans?
If you have a property or an expensive car or a house or any other major asset, then you can use it as a collateral for a loan. This will give you the option to take a secured loan. Secured loans are given at lower rates compared to personal loans. Sometimes, when you need a large amount, this will be the only option left with you. But you should always make your repayments on time or you might have to part from your asset.
If you think you will have even a little difficulty in making repayments, then you should never give your home as collateral. You should take into account various factors before you convert you unsecured loan to a secured loan, particularly if you have a history of bad credit. You may get attractive interest rates, but if you default on your repayments, then you will surely lose your asset.
Unsecured loans are given to borrowers on the basis of their creditworthiness. A borrower doesn’t have to have collateral. But, your credit score must be high to get an unsecured loan. Such a loan is not backed up by any property or asset. The interest will be fixed and must be paid at the end of a specific time period.
To get an unsecured loan, you should maintain a high credit score. You must make all the payments, principal as well as interest, on time and without a single default.
5. Bad Credit loans in India
In India, bad credit loans are an anathema to lenders. So, how will you get a loan in an emergency and when you absolutely need cash but can’t because of a bad credit score. In such cases, there are several alternatives you can look at rather than taking a loan. If a person with a bad credit score applies to a bank for a loan and the application is rejected, the rejection will worsen his credit score. Now that is something that you would not want to happen.
So, the question is, how do you handle this problem?
Your need for quick cash can be solved in a several ways. First off, go talk to your current banker with whom you have done business with for years. It could be a friendly neighbourhood bank where everyone knows everyone and knows your situation well. If you have good relations with the manager, he can surely help you out with a reasonable deal. This way you get a chance to improve your bad credit history by making all the payments and repayments on time or before time. It’s likely, your current banker will understand your previous defaults and your situation and help you out. But, if you try a new banker, he would not be so considerate of your situation and another failed loan application will further harm your credit score.
In India, if you maintain a fixed deposit account with your bank, they will offer a loan up to the amount in fixed deposit account maintained with them. You can also get a credit card on your fixed deposit amount. Although, you might have to live with a lower cash withdrawal limit, it will still take care of your immediate cash requirement. But make sure you never cross the limit given by your banker.
Indians love to save. If you have deposited a certain amount in some bank, break the deposit and use the money, it is still better than getting into debt. Try to keep away from debt as much as you can. It’s always better to figure out a way to manage your expenses. You won’t really need to take a loan at certain times. Some things are not worth the headache of a loan. Besides there is absolutely no reason to a Secured Loan. It might seem a good option at the time but seeing your car, house or property is not worth the loan you took. It’s always a trap and banks won’t care whether you become homeless, all they care is about their money. If need be, you can always ask your friends and family to help you out. They will be more caring and would not take advantage of your bad vulnerable situation.
Whatever the problems are, stay away from the loan sharks. Consult with your existing lender and work out a deal that won’t make you default on your payments and save you from a creating bad credit history. The lender will at all times assist you and advise you how to go about your current financial status.
Apart from these, there are options like Co-operative societies that provide financial aid to hard-done members of the society. Keep yourself aware of the various lender around your residence. There is always a chance that someone will go out of their way to help you. Also, you can always approach the religious institutions that keep a certain amount set aside to help those in need. If not, you can always turn to family members and friends for favours.
It is always a good idea to turn to your family and friends first as they will take into account your financial situation and not try to exploit your urgent need for money. Also, you can set a reasonable interest rate and the term of the loan. But make sure you do not default on the payment as the relationships may suffer due to this.
Stay away from informal money lenders and from secured loans as there is no way out of the arrangement unless you make all the payments. And if you do take a loan, then make sure you repay it on time and better your bad credit history. For as long as you can use the money from your savings instead of becoming indebted. Always pay off a loan first before taking another one. Do not take a loan unless it is absolutely necessary.