It is difficult for people with bad credit to apply for a loan during time of financial need. Such type of individuals are considered as risky customers as their chances of a default are higher and bankers fear carrying bad loans on their books. So, one needs to be careful while using a credit card and during loan re-payments. While, one can also improve credit score, it takes time to gain become creditworthy again.
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Personal loans with low credit risk comes at high interest rates as banks consider them as risky affair. However, banks like SBI and HDFC are very particular on credit history and they don't provide loans to such customers. Factors affecting your Credit score?
There are two types personal loans for bad credit score: One is secured personal loan and the other is an unsecured personal loan.
Secured Personal Loan
In this type of loan, one needs to pledge an asset as collateral, for approval of the loan. This means that borrower is entering into an agreement with the lender that in case if he is unable to repay the loan within the specified period then he will lose the owner ship of the collateral.
Collateral can be can be a vehicle, property or anything that holds a higher value than the loan amount.
Secured loans are suitable for those who are looking for high amount and for a longer duration.
Unsecured Personal Loan
Unsecured personal loan comes with very high interest rates and that too for a short duration. However, the upper cap of the limit is restricted and depends on the lender and his ability to bear risk. Such loans should be avoided unless it is necessary.
If you opt for any of these, its time to re-build your creditworthiness. In case of a default you could end-up in a mess with your credit rating taking a beating.
If you are willing to borrow, you should be aware of the importance of your CIBIL score. If you have regular income, good job history, investment in equity, savings will all play vital role in in approval of bad credit personal loan.