7 Best Loans For Individuals With Bad Credit Score

Can you get a loan with a bad credit score in India? Yes, but the terms will look different. With a CIBIL score below 650, most banks will decline an unsecured loan, and the lenders who say yes usually charge more or approve less.

What changes the answer is what you can offer in return. A loan against your fixed deposit, gold, or property lets the lender recover its money if you default, so your score matters far less. If you have no asset to pledge, some NBFCs and RBI-regulated digital lenders offer smaller unsecured loans at higher interest.

Below, we compare seven options by cost, loan amount, and risk, then show how to improve your approval chances and avoid predatory lenders.

7 Loan Options to Consider with a Bad Credit Score

1. Loan Against Fixed Deposit

If you have a fixed deposit (FD) and need money urgently, a loan against your FD lets you borrow without closing the deposit early. Because the FD acts as security, most banks do not depend heavily on your credit score, which makes this one of the easiest options when your score is low.

How it works

• Depending on the bank’s policy, you may borrow up to about 90% of the eligible FD value. For example, a ₹5 lakh FD could give you a loan of up to ₹4.5 lakh.
• The interest rate is linked to your FD rate, usually with an extra margin of around 1-2%. Check the exact margin with your bank.
• Your FD keeps earning interest under its existing terms, but it stays locked until you repay the loan.
• Paperwork is usually light because the bank already holds your deposit. Some banks also offer an overdraft against FD, where you pay interest only on the amount you use.

Best for: Borrowers with an eligible FD who need short-term funds without breaking the deposit.

Watch out: If you don’t repay as agreed, the bank can recover the dues from your FD. Check the borrowing limit, interest rate, fees and repayment terms before you apply.

2. Gold Loan

A gold loan lets you borrow money by pledging eligible gold jewellery with a bank or other regulated lender. Because the gold acts as collateral, most lenders place little weight on your credit score, which makes this one of the easier options when your score is low.

How it works

• The lender checks the purity and weight of your gold and decides the eligible value before fixing the loan amount.
• Under RBI’s framework for lending against gold and silver collateral, The maximum permissible LTV ratio for gold consumption loans depends on the amount borrowed: 85% for loans up to ₹2.5 lakh, 80% for loans above ₹2.5 lakh and up to ₹5 lakh, and 75% for loans exceeding ₹5 lakh. For example, gold valued at ₹2 lakh could fetch a loan of up to ₹1.7 lakh. Confirm current rules with your lender.
• Interest rates, processing fees and other charges vary by lender and scheme. Compare the total loan cost, including fees.
• Repayment options may include monthly interest payments, a single payment at the end of the term, or EMIs, depending on the product.
• Your gold remains in the lender's custody until the loan is repaid. Confirm any valuation and handling charges before applying.

Best for: Borrowers with eligible gold jewellery who need funds for emergencies, medical expenses or small business needs.

Watch out: If you default, the lender may auction your gold after following the required procedure. Before applying, check the repayment schedule, charges, how the gold is valued and the lender’s auction policy.

Additional Reading: Good loans for bad credit

3. Loan Against Property (LAP)

If you own a house, shop or other property, a loan against property can work even when your credit score is low, because the property reduces the lender’s risk. Your income and repayment record are still checked, and approval is not guaranteed.

How it works

• You pledge a property with a clear title as security.
• The loan is a percentage of the property’s market value, usually lower than the percentage lenders allow on gold or FD loans.
• Tenures are long, often 10 to 20 years, which keeps EMIs manageable.
• Rates are usually lower than personal loans but vary by lender and profile.
• Expect property valuation, legal checks and more paperwork, so approval can take days to a few weeks.

Check these costs: processing fee, valuation and legal charges, and prepayment penalties.

Documents usually needed: identity and address proof, property ownership papers, income proof and bank statements.

Best for: Large, planned needs like business expansion, education fees or a medical emergency, when you can repay comfortably.

Watch out: If you default, the lender can recover dues by selling the property. Borrow only what your income can support.

4. Personal Loan from an NBFC, Small Finance Bank or Cooperative Bank

Large banks often reject low-score applications quickly. NBFCs, small finance banks and cooperative banks are usually more flexible. They may weigh your salary, job stability, bank statements and existing EMIs alongside your score. The trade-off is cost: expect an interest rate noticeably higher than a prime borrower pays, plus processing fees.

How to improve your chances

• Apply first to the bank where your salary or main account is. A steady balance history helps.
• Ask for a smaller amount and a shorter tenure. Lenders see this as lower risk.
• Use the lender's soft-check or pre-approval tool if offered. Avoid applying to many lenders at once, because each formal application is a hard enquiry that can lower your score further.
• Keep total EMIs within about 40-50% of your monthly income.

Before you accept an offer

• Review the APR alongside the interest rate to get a clearer picture of the loan's total cost, including applicable fees.
• Read the Key Fact Statement (KFS) for total repayment, processing fee, prepayment charges and late-payment penalties.
• Confirm the lender is RBI-regulated and reports to credit bureaus, so on-time payments help your score.

Best for: Salaried or regularly earning borrowers who need a small to medium amount, have nothing to pledge, and can repay comfortably. 

Watch out: High interest, fees and penalties. Walk away from any lender who asks for a fee before disbursing the loan.

Example: what a high-rate loan really costs

A ₹50,000 loan repaid over 12 months (illustrative figures):

Processing fees and GST come on top. This is why comparing the full cost matters.

Additional Reading: How to get personal loan for bad credit?

5. Loan With a Co-Applicant or Guarantor

Adding a family member with a strong score and steady income can make a lender more comfortable.

• The co-applicant shares responsibility for repayment.
• Their income can increase the amount you qualify for.
• Repayments show on both credit profiles, so your discipline affects them too.

Best for: People with a trusted, financially stable relative. 

Watch out: If you miss payments, their score suffers and the relationship can be strained.

6. Loan Against Shares, Mutual Funds or Insurance

If you hold investments, you may not need to sell them.

• Shares and mutual funds: The lender gives a percentage of your portfolio value. Debt funds usually get a higher LTV than equity funds or shares.
• Life insurance: Traditional policies (endowment, money-back) that have a surrender value can be pledged. Pure term plans cannot.

Best for: Investors who want to stay invested long term. 

Watch out: If markets fall, the lender may ask you to add security or repay part of the loan.

7. Credit-Builder Loan or Credit-Improvement Product

If your primary goal is to rebuild your credit history, a credit builder product may be worth exploring. Availability depends on the lender and the specific product offered.

These products are intended to help eligible borrowers establish or demonstrate a repayment record. Their structure can vary, so it is important to understand exactly how the facility works before applying.

Some credit improvement services, on the other hand, focus on reviewing credit reports, identifying reporting errors and helping consumers understand the steps needed to improve their credit profile. Such services are not the same as loans and do not guarantee a higher score.

Before choosing a credit-builder product, ask:

• Is a loan actually being provided, or is this a credit improvement service?
• Will the lender report the account and repayment activity to a credit information company?
• What interest, fees and other charges apply?
• What happens if you miss a payment?
• Is the product available to applicants with your current credit profile?

A credit builder product is useful only if its terms are suitable for your finances. Avoid taking on a new loan purely to increase your score if you cannot comfortably afford the repayments.

Best for: Borrowers who want to establish or rebuild a credit history and have found a suitable, transparently priced product.

Loans to Be Careful About

Payday and instant-cash loans: They are fast and need little paperwork, but short tenures and heavy fees can make the effective yearly cost very high. Use only in a genuine emergency, and calculate the total repayment first.

Unregistered loan apps: Protect yourself:

• Check that the lender is a bank or RBI registered NBFC, or that the app partners with one.
• Under RBI digital lending rules, money should be disbursed directly to your bank account and repaid directly to the lender.
• Never allow access to your contacts, photos or gallery.
• Be wary of anyone asking for an upfront fee.

How to Choose the Right Loan for a Bad Credit Score

A simple rule: borrow against an asset you already own before you borrow on your credit score alone. Secured loans are generally cheaper and easier to get, while unsecured loans cost more and are best kept for small, short-term needs.

How to Improve Your Chances of Loan Approval With a Low Credit Score

• Maintain a consistent record of timely repayments: Payment history carries the most weight.
• Keep card utilisation below 30% of your limit.
• Check your credit report regularly: Under RBI rules, you can get one free full report a year from each credit bureau. Dispute any errors.
• Avoid unnecessary loan enquiries: Each creates a hard enquiry.
• Clear overdue dues in full where possible:  A "settled" status still shows as a negative mark, whereas full repayment and a "closed" status look better to lenders.
• Keep older accounts open if they are in good standing. A longer history helps.

Score recovery takes months, so stay consistent.

What to Check Before Taking a Loan With Bad Credit

Before signing a loan agreement, review the following points.

• APR and interest rate: Understand the annual cost of borrowing, including applicable charges.
• Total repayment: Calculate the amount you will repay over the full tenure.
• Processing and other fees: Check deductions, late-payment charges and applicable prepayment or foreclosure terms.
• Repayment schedule: Confirm that the EMI or repayment deadline fits your income cycle.
• Lender identity: Verify the bank or NBFC providing the loan, particularly when applying through an app or intermediary.
• Security requirements: Understand what could happen to your FD, gold or property if you default.
• Loan documents: Read the KFS, sanction terms and agreement before accepting the offer.

A loan should help you address a financial need, not create a larger repayment problem. If you cannot afford the expected instalments, consider whether the expense can be delayed or met through a less costly alternative.

Common Mistakes to Avoid

Borrowers with a poor credit history may feel pressured to accept the first offer they receive. Avoid these common mistakes:

• Assuming that every lender offering a bad credit loan will approve your application.
• Choosing a loan based solely on its stated interest rate.
• Ignoring processing fees, penalties and other applicable charges.
• Putting pledged assets at risk through missed payments.
• Borrowing to repay another loan without assessing the overall debt burden.
• Trusting claims of guaranteed approval or guaranteed credit score improvement.
• Sharing sensitive banking details or paying unexplained fees to unverified intermediaries.

Compare the available options carefully and choose a loan only when the repayment terms fit your financial situation.

Conclusion

A bad credit score limits your choices, but it does not close every door. If you have an FD, gold or investments, secured loans are usually the cheapest and fastest route. If you have nothing to pledge, a co-applicant or a small NBFC loan may work, at a higher cost. Whatever you choose, borrow only what you can repay, compare the full cost, and use the loan to rebuild your score.

Frequently Asked Questions

1. Can I get a loan with a low credit score?

Yes, but options are limited and usually costlier. Many lenders prefer a credit score of 700 or above, so you may get a smaller amount, a higher rate, or be asked for collateral or a co-applicant.

2. Which loan is easiest to get with a poor CIBIL score?

Secured loans, such as a loan against a fixed deposit or gold, are usually easiest because the lender holds collateral. Approval depends more on the asset’s value than on your credit score.

3. Can I get a personal loan with a CIBIL score below 600?

It is difficult but not impossible. Some NBFCs consider income stability and existing EMIs, but expect a higher interest rate and a lower loan amount.

4. How do lenders evaluate low-score applicants?

Banks and NBFCs look at your income, employment stability, existing EMIs and recent repayment history. Criteria vary, so one lender may reject an application that another approves.

5. What should I compare before taking a loan?

Compare the interest rate, processing fee, prepayment charges, late-payment penalties and total repayment amount. Ask the lender for the Key Fact Statement (KFS) to see the full cost upfront.