Loan for Defaulters


  • It is a common myth that CIBIL maintains a defaulter list but it is not true. However, it is not easy for defaulters to get a personal loan as you have either defaulted payment and have unpaid dues. There are still some lenders that offer loans to such individuals.
  • Debt management is a serious task. With so many loan products in the market, it is very easy to fall into the debt trap, but true brilliance is in staying afloat. Defaulting on your loans is not a pleasant experience.
  • A financial emergency could strike at any time unless an emergency fund is ready to deal with it and being a defaulter is not going to help you with getting a loan. While some might be financially prepared, not all might be in the same condition. You may have genuine reasons for defaulting, but it has a long-lasting effect on your entire financial portfolio.
  • It damages your credit score and will affect your future loan prospects too, as it is seen as a sign of poor debt management. However, a loan default is not the end of the world. There are various other options for you to secure funds for your emergency needs. One such option is a personal loan, which is not very rigid with its eligibility requirements for applicants.

Who is a defaulter

  • A defaulter is a person who has missed payments on his loan or credit card for more than one billing cycle. Late payments after the due dates are acceptable but are not a healthy financial habit. Non-payments have serious repercussions on your credit score and can ruin your chances of approval for a loan or credit card, despite having a good income.
  • Loans are accepted based on the applicant's creditworthiness. The amount of the loan is also decided based on the creditworthiness of the borrower. Your credit rating is simply an indicator of how good you are with debt. If you have existing loans or credit cards, your credit score will be measured by how often you have repaid those debts and how timely you were in repaying the loan.
  • A good credit score is essential to avail of loans with attractive terms and higher loan amounts. A person with a high credit score is regarded as an ideal candidate for any type of loan, including a personal loan. Most banks believe that 750 is a good score. Anything lower than that could result in the canceling of the loan as candidates with a lower credit score are considered high-risk.
  • The lender considers your repayment ability before authorizing a loan. The credit score, as well as job security and bank balance, will assess your repayment ability. Banks also take the income to debt ratio against any existing loans into consideration. The better the percentage, the greater the chances of securing a loan. Any high balance of loans will negatively affect your credit score.
  • A poor credit score will have a lasting effect on your quality of life by restricting your purchasing power, rather than just imposing rejections, and ultimately affect your living standards. The groups most impacted are the low-income salaried individuals and self-employed workers in particular.

Why should defaulters choose a personal loan

With a ‘Defaulter’ tag on your credit history, it is pretty much impossible to avail of other types of loans. A personal loan too is not easy to come by for defaulters. However, with a personal loan, the borrower has some leverages which, when applied tactically, can help them secure a personal loan.

Why is a personal loan a suitable option for defaulters

  • Does not require any collateral

  • Can be availed by lower-income individuals

  • Less documentation required

  • Quick processing and disbursal

How to Get a Personal Loan if you’re on the CIBIL Defaulters List

  • Your financial history is recorded in a report so potential lenders can gauge if you’re a responsible or unreliable borrower. One wrong move and you will witness a dip in your score. However, defaulting on your loan is one of the biggest financial mistakes you can make. When you stop making payments towards your loan, you’re registered in the CIBIL defaulter list.
  • Now, this can cause problems for you in the future. Banks and financial institutions will be wary to approve your loan or credit application. In some cases, you may not be able to access financial products for years on end.

So how do you get a personal loan if you’re a CIBIL defaulter?

It’s important to know that major banks and financial institutions will be cautious before approving your loan application. Considering your history, you will have to pull up your credit score before you’re deemed eligible for another financial product.

While it’s much more convenient to get a loan from a bank, your options start wearing thin when you’re a defaulter. Listed below are some options you can look at if you need a personal loan for an emergency.

Secured Loan

One of the options you can opt for is a secured loan or a loan against collateral. If you have any assets or fixed deposits with your bank, you can request them to lend a loan against security. Usually, your credit score is not taken into consideration. However, if you do miss payments, the collateral you have pledged will be seized by your lender.

Loan Backed by a Guarantor

If you are now financially stable but your credit score isn’t, you may still get approved for a loan if you have a guarantor. This will remove the risk factor associated with lending you money. You will need to make sure that your guarantor has an excellent credit score. However, note that if you default on this loan too, your guarantor will have to repay the outstanding balance. Also, their credit score will take a hit in case of default on your part. This is why many are apprehensive about being guarantors for loans.

Online Lenders

Since conventional banks and financial institutions may reject your application, you can always approach an online lender. You can get a loan from an online lending platform as they are a bit more lenient while dealing with applicants with low credit scores compared to banks. However, note that they too can reject your application if they consider you as a risk as most online lenders offer collateral-free loans.

Withdraw Provident Fund

There’s a reason this fund was introduced in the first place—to ensure your retirement is secure. However, if you’re in a financial crunch and are in desperate need of money, you can consider withdrawing your provident fund. Now, you’re only allowed to withdraw this fund partially under certain circumstances.

Salary Advance

  • Again, if you’re in a financial crunch, you can always request your employer for a salary advance. You will need to justify your ask with valid reasons for your employer to consider your request. Being on the CIBIL defaulter’s list is going to create barriers. Before you decide to take an additional loan, you should attempt to clear the loan you’ve defaulted on. You should also find a way to clear your name from the list and improve your credit history, which will then improve your CIBIL score.
  • While there are ways of securing a loan as a defaulter, it’s advised to have a clean financial record before you burden yourself with another loan.


The CIBIL Credit Information Report (CIR) contains an individual’s details of the defaults. This record is with CIBIL for a period of a minimum of 7 years. The CIR does not include any records that are over seven years old. It is not easy for CIBIL defaulters to avail loans from banks and lending institutions. The chances of getting loan approval are low in case you are a consistent defaulter. However, people can still get a personal loan despite having a low CIBIL score.

Questions and Answers

How to remove your name from the CIBIL defaulter?

It is better to first check whether there is an error in your credit report that has made you a defaulter. Another reason could be settling a credit or defaulting a payment towards a credit. It must be noted that even late payments result in an adverse impact on your credit.

What are the rights of loan defaulters?

  • Must get adequate notice

  • A loan is classified as a non-performing asset (NPA) if the repayment is 90 days overdue.

  • In such cases, the lender has to first issue a 60-day notice to the defaulter.

  • If the borrower fails to repay within the notice period, the bank can go ahead with the sale of assets.

What is the punishment for personal loan defaulters?

  • Loan defaulters will not go to jail: Defaulting on a loan is a civil dispute.

  • Criminal charges cannot be put on a person for loan default.

  • It means, police just cannot make arrests. Hence, a genuine person, unable to pay back the EMI's, must not become hopeless.

How to remove your name from the CIBIL defaulter list?

  • Examination of Your Credit Report Make a careful examination of your credit history, this will help you understand your mistakes and will also ensure that your details in the report are flawless and correct.
  • Clear Off Your Dues The best way to improve your credit report is to clear off all your outstanding credit. In case you have any financial limitations, you should speak with your lenders in advance and make a way out. Once your bills are cleared, wait for 3 months and again check your credit report.
  • Pay in Time A delay in the payment of the loan or credit card installment harms your credit history. If you desire an improvement of your credit score or if you want to keep a good score, you should start paying your monthly installment before the due date.
  • Spend as Per Your Credit Limit Try to spend no more than 30% of your credit limit. This one move will always keep your credit score healthy.
  • Take Loans One at a Time If you apply for multiple loans in the same go, you will only show your credit hunger. Applying for short-duration loans is not a good idea either. Therefore, you should apply only for one loan at a time. This makes for easy payments and a higher possibility of getting the loan approved.

What to do if your name is still on the CIBIL defaulter list?

  • Check your credit report - There could be an error causing your name to default. Always check on the report and make sure all your details are properly mentioned, like Date of Birth, Name, PAN number, Address, etc.

  • Another frequent reason why names pop up in default is late and incomplete payments on monthly EMIs