Is it Possible to Get a Personal Loan if You Have Defaulted on a Loan?

A Personal Loan is an unsecured loan that people apply to meet their immediate financial needs. You can take Personal Loans to renovate or repair your home, pay for marriage expenses, purchase white goods, go on a holiday, or for other purposes. Banks and financial institutions do not require collateral or mortgage to avail this loan, and hence, they charge a higher rate of interest to mitigate their risk.

Financial institutions check your creditworthiness to approve or reject your Personal Loan Application. Besides, they take into account your income and employment status, as it allows them to determine whether you are capable of repaying the monthly EMIs (Equated Monthly Instalments) on time.

What Happens When You Default?

If you default a loan, the bank will report the matter you to the credit bureaus. Default occurs after loan delinquency, which means you fail to make the repayments when they are due. When the delinquency extends to more than three months, the financial institution will consider it a default, wherein you fail to repay the loan according to the agreed terms and conditions.

The consequences of a loan default vary based on the type of loan you default. If you default a secured loan, the financial institution is within its legal rights to absorb the collateral and auction it to recover its dues. In case you default a Personal Loan, your credit score will be adversely affected.

The financial institution will report the default to the credit bureau, and this will cause your credit history to take a nosedive. Any other bank or financial institution accessing your credit report will be able to see that you are a defaulter. As a result, it will minimise your chances of getting approval for a personal loan.

Applying for a Personal Loan as a Loan Defaulter

Your credit score will suffer when you default on a loan. Hence, a low credit score means a bank will reject your loan application. While it is tough to get approval for a Personal Loan after you default another, it is not an impossible task.

You should realise that defaulting on a loan is a serious problem. It can trap you in a never-ending cycle of debt besides being hounded by debt collection agencies. It can be a stressful situation. However, even with a low or bad credit score due to an earlier default, it is possible to get a Personal Loan.

Personal Loans for Individuals with Bad Credit History

Some online financial services companies offer Personal Loans to borrowers with bad credit history. These loans come with high interest and may sometimes require collateral. Most of these companies are digital companies and hence, you can apply for a personal loan pnline, through their portal.

Change in Salary

As strange as it may sound, financial institutions will be willing to extend a loan to you if you now earn a significantly higher salary than you made when you defaulted the previous loan. A high salary means you can repay the borrowed sum with ease. So, institutions will be willing to overlook your low credit score and approve your personal loan application.

Remember, if you defaulted in the recent past, getting approval from a traditional lending institution will still be next to impossible. However, if the default was years ago and you have come out of the debt trap, banks will view your loan application more favourably. Nonetheless, you will end up paying a higher interest compared to a borrower who has not defaulted.

Your Options for a Personal Loan After Default

If you want a Personal Loan after a prior loan default, get in touch with the financial experts at MyMoneyMantra. Based on your current financial situation and understanding the reason the default, these experts will find the best option for you – a personal loan for people with bad credit scores.

You can use this opportunity to improve your credit history and score. Make sure you repay the monthly EMIs on time to show the lender that the default was a one-off mistake, and you are a responsible borrower.