How to Increase Your Loan Approval Chances in 2025: Expert Guide

Imagine Raj, a young professional in Kochi, is eager to buy his first car. He applies for a loan, confident his steady income will suffice. However, his application was rejected due to his low CIBIL score of 650. Raj is not alone; many Indians face similar challenges. A CIBIL score below 700 can impact loan approvals, as lenders view it as a moderate risk.

A low credit score can lead to higher interest rates, limited access to credit, and even loan rejections.

But don't lose hope. Even with a less-than-perfect credit score, there are strategies to increase your loan approval chances in 2025. Understanding the factors affecting your creditworthiness and taking steps can turn the tide in your favour.

Understand Your Credit Report

Let’s start with a simple story. 

Ramesh, a teacher from Pune, applied for a home loan but was shocked when his application was rejected. Why? His CIBIL score was 580. The surprising part? He didn’t even know there were errors in his credit report—an old unpaid bill from five years ago was still showing as active.

Your CIBIL score is like a report card for your financial behaviour. It ranges from 300 to 900, and most banks in India prefer scores above 750. But mistakes can happen. Sometimes, loans you’ve paid off aren’t marked as “closed” or incorrect late payment entries appear.

What you should do:

• Check your credit report regularly: You can do this for free from the CIBIL website once a year.
• Report mistakes: If you spot any errors, raise a dispute immediately.
• Clear small dues: Even unpaid credit card dues as small as ₹500 can hurt your score.

By fixing errors, like Ramesh eventually did, your score could improve by 30-50 points in just a few months, giving your loan application a much better chance.

Maintain a Stable Income

Think about Priya, a freelance graphic designer from Bengaluru. She had a good income but lacked a steady monthly salary, which made banks hesitate. Lenders feel more comfortable when they see regular income flowing into your account.

Here’s why a stable income matters:

• Lenders want to be sure you can repay your loan on time.
• A stable job with a consistent salary builds trust with banks.
• Regular income increases your chances of getting a higher loan amount.

How to show stability

• Maintain proper bank statements: Ensure all payments reflect in your bank account, even if you’re a freelancer or self-employed.
• Provide proof of additional income: If you have rental income or investments like fixed deposits (FDs) or mutual funds, show evidence of those earnings.

If you earn ₹50,000 per month, lenders may approve up to 60% of your net income for EMIs (Equated Monthly Installments). This means your EMI should not exceed ₹30,000 per month. A stable income ensures the bank sees you as a low-risk borrower.

Opt for Secured Loans

Now, meet Anil, a businessman from Delhi. With a CIBIL score of 620, he struggled to get an unsecured personal loan. Instead, he chose a secured loan by pledging his fixed deposit as collateral. His loan was approved, and he got a lower interest rate.

What is a secured loan?

A secured loan requires you to offer something valuable as collateral (security), such as:

• Property
• Gold
• Fixed deposits
• Investments like mutual funds

Why secured loans are better for low CIBIL scores

• Lenders have security, so they are more likely to approve your loan.
• You can get lower interest rates.
• The loan amount could be higher depending on the collateral.

Here’s a comparison table for better clarity:

Apply with a Co-applicant or Guarantor

Let’s take the story of Meera, a young professional from Chennai. She applied for a home loan but got rejected because her CIBIL score was 610. Instead of giving up, she added her father, who had a strong score of 780, as a co-applicant. This increased her chances, and the bank approved her loan at a reasonable interest rate.

A co-applicant shares the responsibility of repaying the loan with you. On the other hand, a guarantor steps in to repay the loan if you fail to do so. Both options help boost your credibility in the eyes of lenders.

Benefits of adding a co-applicant or guarantor

• Higher chances of approval: Lenders consider both credit scores and incomes, which reduces risk.
• Higher loan amounts: The combined income increases your eligibility.
• Better interest rates: A strong credit score from your co-applicant often means lower rates.

Example:

If your income is ₹40,000 and your co-applicant earns ₹60,000 monthly, your combined income becomes ₹1,00,000. This allows lenders to approve a higher loan amount since your repayment capacity improves.

Who can be a co-applicant?

• Spouse
• Parents
• Siblings (in some cases)

For Meera, adding her father made a significant difference. You can do the same if you have a close family member with a strong financial record.

Limit Multiple Loan Applications

Think about Rahul, a small business owner in Hyderabad. Desperate to get a loan, he applied to five banks in just one month. He didn’t realise that each application led to a hard inquiry on his credit report, causing his CIBIL score to drop by 5-10 points every time.

Why limiting applications matters:

• Each loan application results in a hard inquiry by lenders, affecting your CIBIL score.
• Multiple rejections make you look like a high-risk borrower.
• It decreases your chances of getting approved in the future.

What should you do instead?

• Research thoroughly: Use online loan comparison tools before applying.
• Check pre-approval offers: Some banks provide pre-approved loans that don’t affect your score.
• Wait before reapplying: If rejected, wait a few months and work on improving your score first.

If Rahul’s score was 700 initially and he applied for 5 loans within two months, his score could drop to 650 or lower, reducing his chances of approval significantly.

Here’s a simple rule: Apply for loans only when confident of approval to protect your credit score.

Consider Non-Banking Financial Companies (NBFCs)

Meet Sunita, a boutique owner from Jaipur. With a CIBIL score of 630, she found it hard to get a business loan from traditional banks. Instead, she turned to an NBFC, which approved her loan quickly with slightly higher interest rates but without the strict credit score requirement.

What are NBFCs?
 

NBFCs are financial institutions that provide banking services without having a banking license. They are more flexible and often offer loans to people with low credit scores.

Benefits of NBFCs:

• Flexible eligibility criteria: They are more likely to approve loans for individuals with lower CIBIL scores.
• Quick processing: Faster loan approvals compared to traditional banks.
• Customised loan options: NBFCs offer personalised loans based on your financial situation.

Comparison: Banks vs NBFCs

Sunita needed ₹5,00,000 for her business expansion. While banks rejected her application due to her score, the NBFC approved her loan within 3 days at an interest rate of 14%, helping her grow her business without delays.

Explore Peer-to-Peer Lending Platforms

Let’s start with Arjun’s story. Arjun, a small business owner from Lucknow, needed a quick loan to buy new equipment for his shop. With a CIBIL score of 590, banks and NBFCs turned him down. That’s when he discovered peer-to-peer (P2P) lending platforms.

What is Peer-to-Peer Lending?

P2P lending platforms directly connect borrowers with individual lenders. Instead of going through a bank, you borrow money from other people who are willing to lend at agreed-upon interest rates.

Benefits of P2P Lending:

• Easier approval: Less focus on credit scores.
• Quick disbursal: Loans are processed faster than banks.
• Flexible terms: You can negotiate repayment periods and interest rates.
  
  

Popular P2P platforms in India:

• Faircent
• LenDenClub
• i2iFunding

Example:

Arjun applied for a loan of ₹2,00,000 on a P2P platform and got it approved within 48 hours at an interest rate of 16%, much faster than a traditional bank would have offered.

Comparison: P2P Platforms vs Banks

For someone like Arjun, P2P lending was the perfect solution to access funds without the stress of credit score restrictions quickly.

Negotiate Loan Terms

Here’s the story of Sneha, a salaried employee from Mumbai with a CIBIL score of 640. She applied for a personal loan and, although the bank was hesitant, didn’t give up. Instead, she negotiated the loan terms based on her stable income and good repayment history on past loans.

Can you negotiate with lenders?

Yes! Banks and NBFCs often leave room for negotiation, especially if:

• You have a steady income.
• You’ve been a loyal customer with a clean repayment history.
• You offer collateral or a higher down payment.

What can you negotiate?

• Interest rates: Lower rates can save you money in the long run.
• Loan tenure: A longer tenure means lower EMIs.
• Processing fees: Some banks might waive off these fees if you negotiate.

Numerical example:

Sneha negotiated her interest rate from 14% down to 11% on a loan of ₹5,00,000 over 5 years. This reduced her total interest paid by ₹45,000 over the loan period.

Negotiation Checklist

Like Sneha, confidently presenting your case with supporting documents (like income proofs and repayment history) can help you secure better loan terms.

Utilize Low CIBIL Score Loan Apps

Ravi, a delivery executive from Bengaluru, urgently needed ₹50,000 for medical expenses. With a CIBIL score of 580, traditional lenders rejected his loan applications. Luckily, Ravi found a solution in low CIBIL score loan apps.

What are Low CIBIL Score Loan Apps?

These mobile apps offer small personal loans to individuals with poor or no credit history. They focus more on your income and repayment ability than your CIBIL score.

Benefits of using these apps

• Quick approval: Loans are often disbursed within 24 hours.
• No heavy documentation: Basic ID proof, address proof, and bank statements are enough.
• Flexible repayment options: Tenures range from 3 to 12 months.

Popular Loan Apps in India:

• MoneyTap
• CASHe
• KreditBee
• EarlySalary

Conclusion

Even if your CIBIL score isn’t perfect, don’t lose hope. Follow these steps to improve your chances of getting a loan:

1. Fix errors in your credit report. Just like Ramesh, clear old dues and update your report regularly.
2. Show a stable income. Like Priya did, provide proof of steady earnings to assure lenders of your repayment ability.
3. Consider secured loans. If your score is low, offer collateral like Anil for better loan terms.

Improving your CIBIL score isn’t a quick fix—it takes time and effort. But by taking these steps, you’ll be closer to getting the loan you need, even with a low score.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?