Emergency loans for bad credit: 5 effective ways to get approved | Mint

Life is unpredictable and financial emergencies tend to appear when they’re least expected. Securing a loan in such situations may not be easy especially if you have a poor credit score. A bad credit score increases the risk for the lenders to provide you with the loan. However, even if you have a bad credit score, there are several ways to get an urgent emergency loan. Let us understand them in detail;

Understanding bad credit score and its impact

A credit score is a number between 300 and 900 that represents your creditworthiness. In general, a score less than 650 is considered poor. Missed payments, high credit utilisation or default on loans can lead to bad credit.

However, a low score doesn’t entirely close the doors to borrowing, but does restrict options. A low credit score attracts high interest rates as well as restricts the amount you can borrow as a loan. However, many lenders do offer emergency loans even on bad credit scores.

Steps to apply for an emergency loan

Identify the right lender: Compare lenders offering emergency loans on a bad credit score. Explore the interest rates and loan amount offered so that you can get the best deal which suits your budget.

Review eligibility criteria: Eligibility varies for each lender. Hence, you can check for alternate lenders who provide emergency loans based on other factors like income, assets owned and bank statements.

Gather required documents: While applying for the loan, keep essential documents ready which may include proof of identity (Aadhaar or PAN card), proof of income (salary slips or bank statements) and proof of address. This way you can have a quick and smooth application process.

Submit the application: After you choose a lender, you can complete the application process online or offline according to your convenience.

Loan approval and disbursement: Once the loan application is approved, the funds are disbursed which usually takes less than a few hours to a few days depending on the lender.

Key factors to consider before applying for an emergency loan

Interest rates: The interest rates on emergency loans on bad credit scores are very high. Hence, evaluate your financial situation in order to determine whether you can afford the EMI or not.

Hidden charges: Emergency loans may attract hidden charges. It is advisable to reach out to the lender to confirm the charges which you may be bound to pay in order to avoid any last minute surprises.

Credit score: While you already have a low credit score, if you miss even a single EMI repayment of your emergency loan, your credit score will go further down. However, timely repayments can provide you an opportunity to gradually improve your poor credit score.

Loan scams: Financial emergencies can be a vulnerable time which may compel you to take desperate moves. It is extremely crucial that you do not fall for scams by fraudulent lenders offering low interest rates on bad credit scores. Hence, before you apply for the loan, always make sure that the lender is legitimate.

Tips to improve loan approval chances

Show stable income: A steady source of income reflects a strong income profile which means that you are capable of repaying the loan on time even with a bad credit score. This may improve your chances of getting the loan approved.

Choose secured loans: By providing collateral, you can improve your approval chances as it provides a security for the lender that you will repay the loan on time without any defaults. .

Apply for a smaller amount: By opting for a smaller loan amount, you’re less risky for the lender which may improve your chance of approval.

Opt for guarantor: A guarantor with a good credit score can significantly improve your loan approval chances.

Clear outstanding debts: If you have any ongoing debts or unpaid bills, it is advisable to clear them at the earliest before applying for the loan as this can improve your credit score.

In conclusion, emergency loans can be a great option for you if you are in need of urgent funds. However, low credit score can be a hindrance in getting your desired loan amount and repayment tenures. It is important to evaluate your urgency as well as your repayment capacity. This is because a high interest loan can be a burden if you do not plan your repayment journey in advance. If you can wait, then it is better to first improve your credit score so that you can avoid high interest rates on emergency loans.

(Note: Raising a loan comes with its own risks. So, due caution is advised)