Dreaming of buying your own home but worried about your bad credit score? You’re not alone. Many people face difficulties obtaining home loans due to a poor credit history, but there’s hope. Several banks and financial institutions in India are willing to provide home loans even if your credit isn’t perfect.
Can You Get a Home Loan with a Low CIBIL Score in India?
If your CIBIL score is below the ideal threshold (typically 750 or higher), securing a home loan can feel daunting. However, a low CIBIL score (below 650) does not necessarily shut the door to homeownership—it just requires extra planning and strategic approaches.
Most traditional banks prefer lending to applicants with higher credit scores because it indicates financial discipline and reliability. A lower score, however, suggests you’ve had issues managing credit, like missed payments or high credit utilization. As a result, banks see you as a higher risk borrower.
But does this mean homeownership is impossible with a bad credit score? Definitely not.
Which Banks Offer Home Loans for Bad Credit Scores in India?
ICICI Bank
ICICI HFC is well-known for its inclusive lending policies. For instance, their ‘Apna Ghar Dreamz’ program specifically caters to borrowers with a credit score as low as 650 or even lower. They understand that life can get complicated, and they’re willing to work with you despite past financial difficulties.
Axis Bank
Axis Bank also provides home loans to those with less-than-perfect credit. Though their conditions may require a higher down payment or the inclusion of a guarantor, their flexible terms make them an appealing choice. For example, Axis Bank often approves loans for applicants who demonstrate steady income and financial stability, even if their credit score is low.
Non-Banking Financial Companies (NBFCs)
Housing finance companies like Aavas Financiers and DHFL often have more relaxed lending norms compared to traditional banks. These institutions frequently approve loans for people with bad credit, although interest rates may be higher due to increased risk.
Suggested Read: Top 5 NBFCs Offering Home Loan
Alternative Financing Options for Bad Credit Applicants
Beyond banks and NBFCs, other innovative financial solutions can help you achieve your dream of homeownership:
Guarantor Loans
Consider getting a guarantor—someone with a good credit score willing to co-sign your home loan. A guarantor reduces risk for the bank and greatly boosts your approval chances.
For instance, Anjali Patel from Ahmedabad got her home loan approved because her brother, who had an excellent credit score, agreed to become her guarantor.
Peer-to-Peer Lending
P2P lending platforms connect you directly with individual lenders. These platforms can be flexible regarding credit scores and might offer competitive interest rates. Platforms like Faircent and LenDenClub are popular examples in India.
Impact of Bad Credit on Home Loan Eligibility
Your credit score, commonly known in India as your CIBIL score, ranges from 300 to 900. A score of 750 or above is typically considered excellent, while anything below 650 is categorized as poor or bad credit.
But why exactly does bad credit matter so much?
Why Does Bad Credit Impact Loan Eligibility?
Your credit score acts as a summary of your past financial behavior. It indicates how responsibly you’ve managed credit cards, personal loans, EMIs, or other debts. Banks use this as a benchmark to judge your trustworthiness and repayment capability.
Here’s what lenders typically infer from your credit score:
- High Credit Score (750+): Indicates disciplined repayment behavior. Banks trust you to repay on time, making it easier for you to secure loans at favorable terms.
- Low Credit Score (Below 650): Suggests a history of missed payments, defaults, or high debt utilization. Banks view this as a higher risk and might reject your application or approve it with stricter conditions, such as higher interest rates, shorter loan tenures, or increased down payments.
Check Out: Home Loan Eligibility Calculator
How Bad Credit Specifically Affects Your Home Loan Application:
- Loan Rejection: Most conventional banks hesitate to lend to applicants with bad credit due to increased risk. A lower credit score could mean an immediate rejection without further consideration.
- Higher Interest Rates: Even if your loan is approved, the lender may charge a significantly higher interest rate to compensate for the risk they are taking.
- Lower Loan Amount: Banks might reduce your eligible loan amount, making it challenging to finance the property you wish to purchase.
- Additional Documentation or Guarantees: Lenders may demand additional assurances such as guarantors, collateral, or a significantly larger down payment.
Real-Life Example:
Let’s look at Ramesh Kumar, a salaried employee from Bengaluru. Ramesh earned a decent salary and had stable employment, but due to delayed repayments on a previous personal loan, his CIBIL score dropped to 610.
When Ramesh applied for a ₹30 lakh home loan with a major public sector bank, he was initially rejected outright. He later approached ICICI Home Finance, where his loan was approved, but at a higher interest rate (9.5% instead of the prevailing market rate of approximately 8.5%) and with a requirement to pay a larger down payment of 30%.
By comparison, his friend Amit, who had a CIBIL score of 780, secured the same loan at a 15% down payment and a significantly lower interest rate of 8.5%.
What Can You Do?
If you’re in Ramesh’s situation, don’t get discouraged. Understanding your credit situation is the first step toward improvement. Regularly reviewing your CIBIL report, correcting errors, paying your debts timely, and keeping credit utilization low can gradually boost your score, improving your chances for better loan terms in the future.
Your credit score is not fixed—it changes constantly based on your financial behavior. Small, consistent improvements can significantly increase your score and eligibility for home loans over time.
Check Out: How does CIBIL Score Impact Your Home Loan Approval?
How Can I Improve My Chances of Getting a Home Loan with a Bad Credit Score?
Having bad credit doesn’t mean the end of your homeownership dreams. Here are practical, actionable strategies to significantly boost your chances of securing a home loan despite poor credit:
Enhance Your Credit Score
Improving your credit score by even 50–100 points can dramatically increase your home loan prospects. Here are some simple steps:
- Pay existing debts and EMIs on time.
- Keep your credit utilization ratio below 30%.
- Regularly check your credit report and dispute any errors promptly.
Increase Down Payment
A higher down payment significantly reduces the lender’s risk. For instance, providing a down payment of 25–30% instead of the standard 10–15% can compensate for your lower credit score.
Check Out: Home Loan Downpayment Calculator
Apply with a Co-Applicant
If your spouse, sibling, or parent has a better credit score, apply jointly. Lenders often consider joint applications less risky, enhancing approval chances significantly.
Also Read: How to Improve your CIBIL Score
You Deserve a Better Home Loan Interest Rate. Check your CIBIL Score Today!
Can I Get a Home Loan if I am on the CIBIL Defaulter List?
Being on the CIBIL defaulter list severely limits your options. Still, it’s not impossible:
- First, clear your defaulted loans and obtain a “No Dues Certificate” from your bank.
- Build positive credit behavior for at least 12 months after clearing defaults.
- Consider NBFCs or private lenders who might offer loans at higher interest rates or with additional collateral.
Suggested Read: Loan Options for CIBIL Defaulters
Home Loan Interest Rates by Top Banks
| Bank | Up to Rs. 30 Lakh | Above Rs. 30 Lakh to Rs. 75 Lakh | Above Rs. 75 Lakh |
|---|---|---|---|
| SBI Bank | 8.00% p.a. onwards | 8.00% p.a. onwards | 8.00% p.a. onwards |
| HDFC Bank | 8.75% p.a. onwards | 8.75% p.a. onwards | 8.75% p.a. onwards |
| LIC Bank | 8.50% – 10.35% p.a. | 8.50% – 10.55% p.a. | 8.50% – 10.75% p.a. |
| ICICI Bank | 8.75% p.a. onwards | 8.75% p.a. onwards | 8.75% p.a. onwards |
| Kotak Mahindra Bank | 8.75% p.a. onwards | 8.75% p.a. onwards | 8.75% p.a. onwards |
| Punjab National Bank | 8.50% – 11.05% p.a. | 8.50% – 11.05% p.a. | 8.50% – 11.05% p.a. |
| Bank Of Baroda | 8.40% onwards | 8.40% – 10.65% p.a. | 8.40% – 10.90% p.a. |
| Bajaj Housing Finance | 8.50% p.a. onwards | 8.50% p.a. onwards | 8.50% p.a. onwards |
| Axis Bank | 8.75%-10.30% p.a. | 8.75%-10.30% p.a. | 8.75%-10.30% p.a. |
| Bank of India | 8.40% p.a onwards | 8.40% p.a onwards | 8.40% p.a onwards |
| TATA Capital | 8.75% p.a. onwards | 8.75% p.a. onwards | 8.75% p.a. onwards |
Home Loan Processing Fees by Top Banks
| Bank | Home Loan Processing Fee |
|---|---|
| SBI (State Bank of India) | 0.35% of the loan amount (min ₹2,000, max ₹10,000) + GST |
| HDFC Bank | Upto 0.50% of the loan amount or Rs. 3300/- whichever is higher |
| ICICI Bank | 0.50% of the loan amount (min ₹3,000, max ₹5,000) + GST |
| Axis Bank | 1% of the loan amount or ₹10,000 (whichever is lower) |
| Kotak Mahindra Bank | Upto 2% of loan amount (plus taxes and any other applicable statutory dues) |
| Bajaj Housing Finance | Up to 4% of the loan amount |
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Frequently Asked Questions
Yes, obtaining a home loan with a low CIBIL score is possible, but it may come with higher interest rates and stricter terms. Lenders assess multiple factors, including income stability and existing debts, alongside credit scores.
While major banks may be cautious, some institutions and non-banking financial companies (NBFCs) might consider applications from individuals with lower credit scores, often at higher interest rates.
Yes, a lower credit score can lead to higher interest rates on home loans. Lenders may increase rates to offset the perceived risk associated with lending to individuals with poor credit histories.
Improve your credit score by paying bills on time, reducing debt, disputing inaccuracies on your credit report, and avoiding new credit inquiries.
Yes, individuals without any credit history can still obtain home loans, though they might face higher interest rates. Establishing a credit history through secured credit cards or small loans can improve loan terms.
While there’s no universal minimum, a CIBIL score above 750 is generally preferred by lenders. Scores between 650 and 750 may still qualify but could attract higher interest rates and stricter terms.
Obtaining a home loan after a previous default is challenging. Lenders may require evidence of financial stability, a significant time gap since the default, and improved credit behavior before considering such applications.
Yes, Non-Banking Financial Companies (NBFCs) often have more flexible lending criteria and may offer home loans to individuals with bad credit, albeit at higher interest rates compared to traditional banks.
Stable and sufficient income can mitigate the negative impact of a low credit score. Lenders consider income stability as a key factor in assessing repayment capacity, which can enhance loan approval chances.
Yes, applying with a co-applicant who has a good credit score can improve your chances of home loan approval. Lenders may view the combined credit profiles more favorably, potentially leading to better loan terms.
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