A low credit score can feel like a financial roadblock. Traditional banks often see it as a red flag, making it tough to get approved for a personal loan when you need it most. In fact, studies show that nearly 70% of loan applications with low credit scores are rejected by traditional banks in India.
But does a past financial hiccup have to define your present? Thankfully, it doesn't. Non-Banking Financial Companies (NBFCs) are increasingly providing a valuable alternative. The fintech sector in India is booming, with a CAGR of 26.55% for personal loans between FY2025 to FY2032, showcasing a growing reliance on alternative lending solutions.
This blog will break down how NBFC personal loans can be an option when your credit score isn't perfect, and what to consider before you apply.
Understanding Credit Scores and Why They Matter
Before diving deeper into NBFC personal loans, it’s important to understand what a credit score is and why it plays such a crucial role in your loan application process.
A credit score is a three-digit number that shows how reliable you are at repaying borrowed money. In India, credit scores usually range from 300 to 900. The higher your score, the better your credit health.
This score is based on your past credit behaviour, including:
- How on-time you are with repayments
- The amount of debt you currently owe
- The length of your credit history
- The types of credit you use
- How often you apply for new credit
Why Does Your Credit Score Matter?
When you apply for a personal loan, lenders use your credit score to assess the risk of lending to you. A good credit score (usually above 750) signals to lenders that you are a reliable borrower, increasing your chances of loan approval and enabling you to access loans at lower interest rates. Conversely, a bad credit score (below 650) can make lenders wary, often leading to loan rejections or higher interest rates.
In fact, many traditional banks in India reject nearly 70% of loan applications from individuals with low credit scores, making it difficult for you to access funds when you need them the most.
Common Causes of a Low Credit Score
Your credit score can drop due to:
- Missing or delaying loan or credit card payments
- Carrying high balances on your credit cards
- Defaulting on loans
- Errors in your credit report
However, having a bad credit score doesn’t mean you’re out of options. This is where NBFCs step in with more flexible lending criteria and alternative risk assessment models, offering you a chance to secure a personal loan and gradually rebuild your creditworthiness.
Understanding your credit score is the first step towards making informed borrowing decisions and improving your financial health. In the next section, we’ll explore how NBFCs cater specifically to individuals with less-than-perfect credit scores and why they might be the right choice for you.
The Role of NBFCs in Lending to Individuals with Bad Credit
Unlike traditional banks, NBFCs have carved out a niche in the Indian financial ecosystem by catering to borrowers who often find it difficult to access credit elsewhere. But what exactly sets NBFCs apart, especially when it comes to lending to people with low credit scores?
What Are NBFCs?
NBFCs, or Non-Banking Financial Companies, are financial institutions licensed by the Reserve Bank of India (RBI) that provide a range of banking services—except for accepting demand deposits like savings accounts. They specialise in lending and financial services, often focusing on segments underserved by conventional banks.
Why NBFCs Are More Accessible for Bad Credit Borrowers
One of the key reasons NBFCs are more willing to lend to individuals with bad credit scores is their flexible risk assessment models. Unlike banks, which heavily rely on credit scores and stringent documentation, NBFCs often consider additional factors such as your income stability, employment type, and digital footprint.
Moreover, NBFCs tend to have simplified documentation requirements and quicker loan processing times, making them a preferred choice for borrowers seeking fast access to funds.
How NBFCs Provide Loans: Multiple Convenient Channels
NBFCs have embraced technology and innovation to reach borrowers efficiently through various channels:
- Digital Lending Apps: Many NBFCs partner with or operate their own mobile apps that allow you to apply for personal loans online, upload documents digitally, and receive approvals within minutes. This digital-first approach has made loan access faster and more convenient, especially for young and tech-savvy borrowers.
For example, Pocketly is a digital lending platform that connects borrowers to NBFCs like Fairassets Technologies India Private Limited and Speel Finance Company Private Limited, offering personal loans with minimal documentation and quick disbursal. IndiaLends and SmartCoin also aggregate loan offers from various NBFCs, helping borrowers find suitable personal loans without multiple applications.
- Direct Lending: Some NBFCs still operate through physical branches or customer service centres where you can apply in person, offering personalised assistance. Bajaj Finserve, Mahindra Finance provides direct lending services, especially in semi-urban and rural areas, combining physical presence with digital tools.
- Partnerships with Fintech Platforms: NBFCs often collaborate with fintech companies that act as intermediaries, connecting borrowers with multiple NBFCs through a single platform. This expands your options and simplifies comparison shopping.
This multi-channel approach has contributed to the rapid growth of NBFC personal loans in India. In fact, personal loans sanctioned by NBFCs increased by 21% in the financial year 2023-24, reaching a value of over ₹15,108.2 crore, reflecting growing consumer trust and demand for these alternative lending options.
Eligibility Criteria and Loan Features
Typically, NBFCs set eligibility criteria that are more inclusive. For example:
- Minimum age: 18 years
- Maximum age: Usually up to 40 or 60 years depending on the lender
- Proof of regular income (salaried or self-employed)
They also offer personal loans with flexible tenures and competitive interest rates, although these rates may be slightly higher than traditional banks due to the increased risk they take on.
Read More: Understanding Minimum and Maximum CIBIL Score for Personal Loans and Credit Cards.
Having understood how NBFCs operate and reach borrowers through multiple convenient channels, it’s important to explore the specific benefits they offer.
Benefits of NBFC Personal Loans
If you’re considering a personal loan but worried about your credit score, NBFC personal loans come with several advantages that might make them the right choice for you.
1. Greater Accessibility for Borrowers with Low Credit Scores
NBFCs often have more flexible lending criteria compared to traditional banks. They assess your creditworthiness using alternative data points beyond just your credit score, such as income stability and digital behaviour. This means you have a better chance of loan approval even if your credit score is less than ideal.
2. Faster Loan Processing and Disbursal
Thanks to their adoption of digital technologies, many NBFCs can process your loan application quickly. Some digital lending apps offer instant approvals and disbursal within hours, helping you access funds when you need them urgently.
3. Minimal Documentation
NBFCs typically require fewer documents than banks. Many loans can be applied for with just basic KYC documents and proof of income, reducing the hassle and time involved in loan processing.
4. Flexible Loan Amounts and Tenures
NBFCs offer a wide range of loan amounts, often starting from as low as ₹1,000 up to ₹25,00,000 or more, depending on the lender. Additionally, you can choose flexible repayment tenures that suit your financial situation, helping you manage EMIs comfortably.
5. Convenient Digital Access
With many NBFCs operating through mobile apps and online platforms, you can apply for loans, track your application status, and manage repayments from the comfort of your home, anytime and anywhere.
6. Opportunity to Improve Your Credit Score
By responsibly repaying an NBFC personal loan on time, you can gradually improve your credit score. This can open doors to better loan offers and financial products in the future.
While NBFC personal loans offer these benefits, it’s essential to compare interest rates, processing fees, and repayment terms before applying. Now that you know the benefits of NBFC personal loans, the next important step is finding the right loan that fits your financial needs and repayment capacity.
How to Find the Right NBFC Loan
With numerous NBFCs and digital platforms available, choosing the best option can feel overwhelming. Here are some practical tips to help you make an informed decision:
- Verify RBI Registration: First and foremost, ensure the NBFC you are considering is registered with the Reserve Bank of India (RBI). This guarantees that the lender operates under regulatory oversight, providing you with a safer borrowing experience.
- Compare Interest Rates and Fees: Interest rates and processing fees can vary significantly between NBFCs. Look for competitive rates but be cautious of extremely low offers that might come with hidden charges. Calculate the effective cost of borrowing by considering all fees and charges.
- Check Loan Amounts and Tenure Options: Choose an NBFC that offers loan amounts and repayment tenures suitable for your needs. Flexible tenures allow you to manage EMIs comfortably without straining your monthly budget.
- Read Customer Reviews and Testimonials: Online reviews and testimonials provide valuable insights into the lender’s customer service, transparency, and loan disbursal speed. Look for consistent positive feedback and responsiveness.
- Understand the Repayment Terms: Before applying, carefully read the loan agreement to understand repayment schedules, penalties for late payments, and prepayment options. Transparent terms help avoid surprises later.
- Use Loan Comparison Platforms: Digital platforms like Pocketly, IndiaLends, and SmartCoin allow you to compare multiple NBFC loan offers side-by-side. These platforms simplify the process by providing personalised loan options based on your profile.
- Assess Your Repayment Capacity: Be realistic about how much EMI you can afford each month. Borrowing within your means helps maintain financial health and prevents defaults.
By following these tips, you can confidently choose an NBFC personal loan that aligns with your financial goals and improves your borrowing experience.
In the next section, we’ll discuss how responsibly managing your NBFC loan repayments can help you rebuild your credit score over time.
Improving Your Credit Score While Repaying an NBFC Loan
Taking out a personal loan from an NBFC can be a smart way to meet your financial needs, especially if you have a bad credit score. But beyond just accessing funds, it’s also an opportunity to improve your credit score—a crucial step towards better financial health and easier access to credit in the future.
- Make Timely Payments: Your repayment history is the most significant factor affecting your credit score. Always ensure you pay your EMIs on or before the due date. Even a single missed or late payment can negatively impact your score.
- Avoid Defaulting: Defaulting on your loan can severely damage your creditworthiness. If you face financial difficulties, communicate with your lender early to explore options like restructuring or EMI rescheduling.
- Keep Credit Utilisation Low: If you have credit cards or other loans, try to keep your credit utilisation ratio below 30%. This means not maxing out your available credit limits, which signals responsible borrowing behaviour.
- Monitor Your Credit Report Regularly: Check your credit reports from agencies like CIBIL, Experian, or Equifax periodically. Look out for errors or discrepancies and report them promptly to ensure your credit history is accurate.
- Limit Multiple Loan Applications: Applying for several loans or credit cards in a short span can lower your credit score. Space out your credit applications and only apply when necessary.
- Build a Positive Credit History: Besides repaying your NBFC loan, consider maintaining other credit accounts responsibly. Over time, a positive credit history will reflect well on your credit score.
If you are wondering about your best options for credit cards if you have low CIBIL score, read our guide on Credit Card for Low CIBIL Score in India
By following these steps, you can use your NBFC personal loan not just as a financial solution but as a tool to rebuild and strengthen your credit profile. This improved creditworthiness will open doors to more favourable loan terms and financial products down the line.
Top NBFCs for Bad Credit Loans
If you have a bad credit score and are looking for quick personal loans, NBFCs (Non-Banking Financial Companies) can be your best bet. Unlike traditional banks, many NBFCs offer more flexible lending criteria, considering factors beyond just your credit score such as income stability and repayment capacity.
Here’s a competitive overview of some of the top NBFCs that are known for providing personal loans to individuals with bad credit scores in India:
| NBFC Name | Interest Rate (p.a.) | Processing Fee | Loan Amount Range | Key Features |
|---|---|---|---|---|
| Fairassets Technologies India | 14.1% onwards | 0.5% to 1.5% per month | Up to ₹7 lakh | Quick disbursal, flexible eligibility, digital process, minimal documentation, P2P platform |
| NDX Financial Services | 11% onwards | Variable | Up to ₹10 lakh | High diversification, robust borrower verification, minimal risk, and digital process |
| Bajaj Finserv | 11% onwards | Up to 3.93% | Varies | Extensive branch network, fast processing, wide customer base |
| StashFin | 11.99% onwards | Up to 10% | Up to ₹5 lakh | Digital-first lending, flexible repayment options cater to low credit borrowers |
| Faircent | 9.99% onwards | Up to 8% | Varies | Peer-to-peer lending platform, competitive rates, considers alternative credit data |
| KreditBee | Up to 29.95% | Up to 6% | Up to ₹5 lakh | Instant loans via app, caters to salaried and self-employed, accepts lower credit scores |
| Navi | 9.9% – 45% | NIL | Up to ₹20 lakh | No processing fee, fully digital, quick disbursal, flexible tenure |
| Money Tap | 13% onwards | NIL | Up to ₹5 lakh | Revolving credit line, no collateral, minimal documentation |
| Dhani Loans | 13.99% onwards | 3% onwards | Up to ₹15 lakh | Instant approval, digital application, flexible repayment |
| Money View | 15.96% | Starting from 2% | Up to ₹5 lakh | Quick disbursal, minimal documentation, caters to low credit scores |
Why These NBFCs Stand Out for Bad Credit Loans
Many of these NBFCs consider factors beyond just your credit score, such as steady income, employment status, and repayment capacity.
- Minimal Documentation: They require fewer documents compared to traditional banks, making the application process faster and simpler.
- Digital Access: Most offer user-friendly mobile apps or online platforms for quick loan applications and approvals.
- Loan Amount and Tenure Flexibility: They provide a range of loan amounts and flexible repayment tenures to suit your financial situation.
- Fast Disbursal: Many NBFCs disburse loans within hours or a few days, ideal for urgent financial needs.
Additional Options and Considerations
- Secured vs Unsecured Loans: NBFCs like Muthoot Finance also offer secured loans (e.g., gold loans) which can be easier to get approved for if you have bad credit, often at more competitive interest rates.
- Co-applicants and Guarantors: Some NBFCs allow co-applicants or guarantors to improve your chances of approval and get better terms.
- Interest Rates: While NBFCs are more flexible, interest rates for bad credit borrowers tend to be higher than those for borrowers with good credit scores.
While a bad credit score can limit your options with traditional banks, NBFCs provide a viable alternative with their flexible lending models and digital innovations. It’s important to compare interest rates, fees, and repayment terms across these NBFCs before applying. Also, ensure you borrow responsibly to improve your credit score over time.
Pocketly: A Digital Lending Platform Connecting You to NBFCs
After exploring how NBFCs provide personal loans to individuals with bad credit, you might wonder: How do I find the right NBFC quickly and easily? This is where Pocketly comes in—a digital lending platform, on behalf of NBFCs, designed to simplify your loan journey through a single, user-friendly app.
How Pocketly Stands Out from Direct NBFC Lending
- One Platform, Multiple NBFCs: Instead of applying separately to different NBFCs, Pocketly provides you a loan through several trusted NBFC partners like NDX P2P Private Limited and Speel Finance Company Private Limited—all within one app. This saves you time and effort in comparing options.
- Simplified Application Process: Pocketly’s sign-up and loan application process is designed to be hassle-free, requiring minimal documentation and just a few clicks. You don’t need to visit multiple branches or fill out lengthy forms.
- Quick Approvals and Instant Disbursal: Pocketly leverages advanced digital lending technology to provide instant loan approvals and fast disbursal, often within minutes, so you get the funds exactly when you need them.
- Flexible Loan Amounts and Repayment: Borrow from as little as ₹1,000 up to ₹25,000 initially, with the possibility to increase your credit limit based on timely repayments. Pocketly offers flexible EMI options tailored to your budget, making repayment manageable.
- No Hidden Charges: Transparency is key at Pocketly. There are no annual fees, joining fees, or hidden costs—what you see is what you get.
- 24/7 Online Support: Pocketly’s customer support is available round the clock to assist you with any queries or issues, ensuring a smooth borrowing experience.
- Designed for Young Indians: Pocketly understands the unique financial needs of young professionals, students, and freelancers who may not have traditional income proofs or perfect credit scores.
Pocketly vs. Direct NBFC Lending: The Advantage
| Feature | Pocketly | Direct NBFC Lending |
|---|---|---|
| Access to Multiple NBFCs | Yes, through one app | No, separate applications needed |
| Application Process | Fully digital, minimal documents | May require more paperwork |
| Approval & Disbursal Speed | Instant approvals, quick disbursal | Can be slower, branch-dependent |
| Loan Amount Flexibility | ₹1,000 to ₹25,000 (initially) | Varies by NBFC |
| Transparent Fees | No hidden fees | Fees may vary and be less transparent |
| Customer Support | 24/7 online support | Varies, often limited hours |
Conclusion
Facing financial emergencies or fulfilling personal goals can be challenging, especially if you have a less-than-perfect credit score. While traditional banks may turn you away, NBFCs offer a flexible and accessible alternative with personal loans tailored to your needs.
Digital lending platforms like Pocketly can simplify and speed up the entire loan process. Pocketly connects you with multiple trusted NBFCs, offering quick approvals, transparent terms, and flexible repayment options—all from the convenience of your smartphone. Whether you need a small loan to manage unexpected expenses or a larger amount for personal projects, Pocketly makes it easier than ever to access funds, even if your credit score isn’t perfect.
Don’t let a low credit score hold you back from achieving your financial goals. Take control today by choosing smart, responsible borrowing through NBFC personal loans and the Pocketly platform. Download the Pocketly app now from the Google Play Store or Apple App Store and unlock quick, hassle-free personal loans tailored just for you!
FAQs
1. Can I get a personal loan from an NBFC if I have a bad credit score?
Yes, many NBFCs offer personal loans to individuals with bad credit scores by using flexible eligibility criteria and alternative credit assessment methods. However, interest rates may be higher compared to loans for borrowers with good credit.
2. How is applying for a loan through Pocketly different from applying directly with an NBFC?
Pocketly is a digital lending platform that provides loans through multiple NBFCs within a single app. This saves time and effort by allowing you to compare loan offers, apply quickly with minimal documentation, and get faster approvals—all in one place.
3. What documents do I need to apply for an NBFC personal loan via Pocketly?
Typically, you’ll need basic KYC documents such as your Aadhaar card, PAN card, and proof of income (like salary slips or bank statements). Pocketly’s digital process makes it easy to upload these documents securely through the app.
4. How quickly can I get the loan amount after applying on Pocketly?
Pocketly leverages digital technology to provide instant or same-day approvals in many cases. Once approved, the loan amount is usually disbursed directly to your bank account within a few hours to a day.
5. Will taking a personal loan from an NBFC help improve my credit score?
Yes, if you make timely repayments on your NBFC personal loan, it can positively impact your credit score over time. Responsible borrowing and repayment behaviour are key to rebuilding and improving your credit profile.