By 2025, the average household is struggling with at least 2.7 loans. Crazy, right? But let’s be honest, how can a middle-class family afford a ₹1 crore+ home and a ₹10 lakh+ car just from their salary? Do you know that a decent private school education costs over ₹1.7 lakh a year?

It’s nearly impossible to lead a life that we want without financial help. Loans have become a way of life, not just an option.

Every loan comes with interest, and you have to pay it back. Interest rates depend on many things, like who’s lending you the money, your financial discipline, and most importantly, your credit score. If your score is 750+, banks will roll out the red carpet for you.

But what if it’s lower? Like, below 600? Have you ever thought about that?

For example, Riya, 29, had ₹7,45,000 in debt across 3 credit cards and 2 personal loans. Banks denied her any further loans due to a 580 credit score.

She corrected 3 credit report errors, approached an NBFC, and added a guarantor with a 780 score.

Finally, she secured a ₹6,00,000 consolidation loan at 18% interest. The rate is high, but it reduced her monthly payments from ₹42,000 to ₹28,500.

Aspect	Before Consolidation	After Consolidation	Outcome (2.5 Years)
Total Debt	₹7,45,000 (5 debts)	₹6,00,000 (single loan at 18%)	₹0
Monthly Payment	₹42,000	₹28,500	Savings rate increased by 40%
Credit Score	580 (rejected by banks)	600 (errors fixed + guarantor added)	750+
Key Steps	- 85% credit utilisation - Multiple loans	- NBFC loan with guarantor - Lowered EMI	- Timely payments - Utilization <30%
Total Interest	₹2.1L/year (estimated)	₹2.55L total (over 2.5 years)	Saved ₹3.9L vs. continuing old debts

Riya did a couple of things to consolidate all her past debts. It was a struggle in itself, but she reduced her monthly payment and paid what she owed. Like her, you can also be debt-free, no matter your credit score. Let’s learn more about it in this blog.

Can You Get a Debt Consolidation Loan with a Credit Score Below 600?

Banks have always supported people like Ramesh when they needed financial assistance. But who exactly are ‘people like Ramesh’? What makes him unique? It’s simple: his strong financial discipline, clean credit history, and, most importantly, a high credit score.

Banks trust that their money is safe with them and will return with interest.

But let’s be honest—not everyone is Ramesh. For people like us, NBFCs (Non-Banking Financial Companies) and fintech platforms step in. They serve borrowers with less-than-perfect financial records, offering a second chance when banks say no.

Read More – Why Isn't Your CIBIL Score Improving?

Traditional Banks vs. NBFCs & Fintech Lenders

With the help of the table, you can analyse the differences between traditional banks, NBFCs, and Fintech Lenders.

Factor	Traditional Banks (Not Helpful for Poor Credit)	NBFCs (More Flexible)	Fintech Lenders (Easiest Approval)
Loan Approval	It is very difficult with a low credit score	Possible with lower scores	AI-based considers alternative data
Credit Score Requirement	750+ for good terms, below 600 often rejected	600+ accepted; below 600 possible with conditions	No fixed requirement considers spending habits
Income Proof	Strict requirements (salary slips, ITR)	Flexible (bank statements, business income)	May approve based on UPI and transaction history
Collateral Requirement	Often required for large loans	Mostly unsecured loans	Mostly unsecured loans
Interest Rates	Low for high-credit borrowers, high for low-score borrowers	Higher than banks but flexible	Highest but accessible to all
Processing Time	Long (weeks due to strict verification)	Faster (days, minimal verification)	Instant (minutes to hours)
Rejection Reasons	Low score, past defaults, unstable income	Case-by-case basis	Considers overall financial behaviour
Loan Amount Flexibility	Strict eligibility limits	Offers small to medium loans easily	Very flexible, short-term loans available
Customer Experience	Heavy paperwork	Hybrid (digital + physical)	Fully digital

How to Improve Your Chances of Getting a Loan with a Low Credit Score?

As you’ve seen, platforms are willing to offer consolidation loans even if your credit score isn’t perfect. However, these loans often have drawbacks, such as high interest rates. So, what can you do to secure the best deal? Let’s talk about it.

1. Apply with a Co-Applicant or Guarantor

If your credit score is below 600, don’t worry; you can still improve your chances of getting a loan. How? By bringing in someone with a more substantial financial profile, like a co-applicant or a guarantor.

A co-applicant shares 100% of the repayment responsibility, which makes lenders feel secure. A guarantor, on the other hand, doesn’t repay the loan unless you miss the payments. If that happens, the lender can demand 100% repayment from them.

So, who can be the Ramesh in your life? Your spouse, parents, siblings, close friends, or business partners. With their support, your loan approval chances can increase by up to 60%, and you might even get interest rates 3-5% lower.

For example, Karan, a 32-year-old graphic designer, had a credit score of 580 and struggled to get a ₹5 lakh debt consolidation loan. Every bank rejected him. Then, his father (credit score 780) became his guarantor.

Within 48 hours, Karan secured the loan at 12% interest instead of 18%. A strong guarantor didn’t just get him approval; it saved him ₹30,000 annually in interest!

Aspect	Before Debt Consolidation	After Debt Consolidation	Savings Over 5 Years
Loan Type	Multiple high-interest debts (credit cards, personal loans)	Single debt consolidation loan	-
Credit Score	580 (rejected for refinancing)	Approved with father’s 780 score as guarantor	Credit score improved to 680+ (because of timely repayments)
Interest Rate	18% (average)	12% (secured via guarantor)	₹30,000 saved annually
Total Debt	₹5,00,000 (spread across multiple debts)	₹5,00,000 (consolidated into one loan)	-
Monthly Payment	₹12,500 (multiple EMIs, variable interest rates)	₹11,100 (single EMI at 12%)	₹1,500/month (total is ₹90,000)
Key Factor	High risk due to scattered debts + low score	Father’s creditworthiness as guarantor	Avoided ₹1.5L extra interest from old rates

2. Opt for a Secured Loan

Secured loans are the best option for anyone with a bad credit score. Here, you pledge an asset like gold, property, or fixed deposits worth ₹1 lakh or more as collateral. This lowers the lender’s risk, making approval easier. You also get lower interest rates (3-5% less) and longer repayment periods (up to 15 years).

Types of Collateral You Can Use

Gold: Gold loans have flexible eligibility criteria and offer interest rates as low as 7-10%, lower than unsecured loans.
Property (Home/Land): A Loan Against Property (LAP) allows you to borrow up to 60-70% of the property's value, making it a great option.
Fixed Deposits (FDs): Some banks offer loans against FDs at 1-2% higher than the FD rate, ensuring lower interest costs.
Vehicles: Certain lenders let you pledge your car or two-wheeler as security, offering loans up to 80% of its value.

For example, Akshay, a 30-year-old small business owner from Jaipur, faced a significant cash issue when his business slowed down. He needed ₹5 lakh for inventory restocking but had a credit score 590. It was challenging to get unsecured loans at good terms.

So, he explored secured loans. He had 150 grams of gold and a fixed deposit of ₹2 lakh, which he used as collateral. Let’s see his financial journey with the help of the tables given below:

Initial Loan Offers (Unsecured Loan)

Loan Type	Amount Required (₹)	Interest Rate (%)	Monthly EMI (5 years)	Total Repayment (₹)	Approval Status
Personal Loan	5,00,000	24%	₹14,186	₹8,51,160	Rejected
Business Loan	5,00,000	22%	₹13,915	₹8,34,900	Rejected

Final Secured Loan Plan (Approved Loans)

Collateral Used	Loan Amount (₹)	Interest Rate (%)	Loan Term (Years)	Monthly EMI (₹)	Total Repayment (₹)
Gold Loan (150g)	4,00,000	9.5%	5	₹8,393	₹5,03,580
FD-backed Loan (₹2L)	1,00,000	8.5%	3	₹3,154	₹1,13,544
Loan Against Property	2,00,000	10%	10	₹2,645	₹3,17,400

Financial Trajectory (2025-2029)

Year	Loan Balance (₹)	Interest Paid (₹)	EMI Paid (₹)	Savings vs. Unsecured Loan (₹)
2025	5,00,000	45,000	1,70,304	30,000
2026	3,90,000	37,500	1,70,304	62,000
2027	2,70,000	28,500	1,70,304	95,000
2028	1,50,000	19,000	1,70,304	1,32,000
2029	0	0	1,70,304	1,50,000

Maintain a Low Debt-to-Income (DTI) Ratio

Debt-to-Income Ratio (DTI) tells whether you can handle more debt. If your DTI ratio is high, that means a significant part of your income goes into debt. This further concludes that you are not eligible for any further loans.

DTI ratio is calculated as:

DTI = Total Monthly Income × 100 / Total Monthly Debt Payments

Also Read - Build a High Credit Score Without Taking Loans

So, it is advised that you improve your debt-to-income ratio. This way, your monthly EMIs will decrease and you will be eligible for further loans. Here are a few methods that can help you in the journey:

Consolidate Existing Debts Into One Loan

If you’re paying multiple loans with high interest rates (above 18%), consolidate them into a single loan with a lower EMI (around 12-15%). This can make repayment easier.

For example, Malti, a 35-year-old business owner, had three loans with high interest rates. Her total EMI payments were ₹13,500 per month, which made repayment stressful.

She opted for a debt consolidation loan, merging all debts into a single loan at 14% interest, reducing her EMI to ₹8,900 per month.

Loan Type	Outstanding Amount (₹)	Interest Rate (%)	Monthly EMI (₹)
Personal Loan	2,00,000	18%	5,000
Credit Card Debt	1,00,000	24%	6,000
Small Personal Loan	50,000	22%	2,500
Total Before	3,50,000	Varies	13,500
Consolidation Loan	3,50,000	14%	8,900

Pay off Smaller Debts Before Applying for a Loan

Clearing smaller debts, such as credit card dues, personal loans, or BNPL (Buy Now, Pay Later) payments, reduces your DTI ratio and improves your credit score.

For example, Tiyasha, a 28-year-old marketing executive, struggled with multiple small debts, keeping her credit score below 650. She wanted a ₹5 lakh personal loan but kept facing rejections.

Realising her Debt-to-Income (DTI) ratio was too high, she decided to clear her smaller debts first.

Debt Type	Outstanding Amount (₹)	Interest Rate (%)	Monthly EMI (₹)
Credit Card 1	8,000	36%	3,200
Credit Card 2	12,000	24%	4,000
BNPL Payments	5,000	0%	1,500
Total Cleared	25,000	Varies	8,700

Increase Your Income Through Side Gigs or Freelancing

A higher income automatically lowers your DTI ratio, making you more attractive to lenders. Consider freelancing, consulting, part-time jobs, or renting out property to increase your income.

For example, Amartya, a 29-year-old content writer, had a stable salary of ₹50,000 per month but had a high DTI ratio. He planned to apply for a ₹7 lakh car loan, but banks rejected him due to his debt load.

He took up freelancing and part-time tutoring to improve his eligibility, increasing his monthly earnings.

Income Source	Monthly Earnings (₹)
Full-time Salary	50,000
Freelancing (Editing)	8,000
Weekend Tutoring	5,000
Rental Income	3,000
Total Income	66,000

Conclusion

‘Seedhi Baat Hai’, debt consolidation with a low credit score, is not easy, but it’s not impossible. If banks reject you, NBFCs and fintech lenders have your back, just like we do. The thing is, you have to play smart. Fix credit report errors, get a guarantor, or opt for a secured loan. ‘Kisi ka bhi sahara le lo, bas dubna mat!’

Like others, you, too, can turn things around. Whether using your dad’s solid credit score as a guarantor, pledging gold, or even starting a side hustle, there’s always a way out. And once your debt is under control, your financial stress will drop faster than the temperatures in Delhi during December.

So, don’t lose hope. Take control, make a plan, and get debt-free, one smart move at a time!

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