How to Get a Loan if You’ve Defaulted on Your Credit Card

Finding yourself in credit card default can feel overwhelming, especially when you need financial assistance. Credit card default occurs when you fail to make the Minimum Amount Due (MAD) payments over several months, significantly damaging your credit score. As a result, many banks and lenders are reluctant to offer loans to defaulters or provide them under unfavourable terms. Defaulting on a credit card can be stressful. You’re not only dealing with growing debt but also worrying about how it will affect your future financial options. 

If you’ve found yourself in this situation, you might wonder: Can I still get a loan? Well, the answer isn’t a simple yes or no – it depends on several factors, including your credit score and the type of loan you’re applying for. Let’s break it down:

• Default happens when you miss your Minimum Amount Due (MAD) for several months.

• After six months of non-payment, your card issuer sends you a default notice.

• As missed payments pile up, so do interest and fees, pushing your debt higher.

• Every missed payment hurts your credit score, making future loans harder to get.

• Your credit card issuer reports the default to credit bureaus like CIBIL and Experian.

• The default stays on your credit report for up to seven years, raising a red flag for lenders.

• It becomes harder to get approved for loans, and if you do, expect higher interest rates.

• The terms won’t be as favourable as if your credit was clean.

• Loans after a default tend to come with higher interest rates.

• Approval depends heavily on your income, financial stability, and whether the loan is secured or unsecured.

• You can apply for a joint loan with a family member or partner who has a good credit score.

• Both of you will share the responsibility for repaying the loan.

• A co-applicant with a solid credit profile can increase your chances of approval.

• Keep in mind, if payments are missed, it affects both of your credit scores.

• A guarantor with a strong credit score (750+), such as a friend or relative, can help you get a loan.

• The guarantor reduces the lender’s risk by agreeing to cover the debt if you default.

• This option is useful when your credit score alone isn’t enough to secure the loan.

• A secured loan requires you to put up something valuable as collateral, like property or a car.

• Lenders are more willing to approve these loans since they can seize the collateral if you default.

• Secured loans tend to have lower interest rates than unsecured loans.

• Start by making on-time payments on any existing debt, even if it’s just the minimum amount.

• Clear outstanding balances on credit cards or personal loans where possible.

• Keep your credit utilisation low (under 30% of your credit limit).

• Regularly check your credit report for errors or outdated information that could hurt your score.

• Approach your lender to discuss better repayment terms or reduced interest rates.

• Some lenders might offer loan restructuring or settlements if you show a willingness to repay.

• Debt consolidation could also be an option, combining several loans into one with a manageable payment plan.

• Online platforms connect you directly with lenders who are willing to work with borrowers with lower credit scores.

• P2P loans typically come with higher interest rates but are a good option when banks say no.

• Co-operative societies can offer more flexible loan terms, even if you have a poor credit score.

• These not-for-profit institutions may offer lower interest rates compared to traditional banks.

• You will need to show stable income and financial responsibility to qualify.

• Loans for defaulters usually come with higher interest rates, so compare offers from multiple lenders.

• Make sure to calculate the total cost of the loan, including interest, before accepting it.

• Go through the repayment schedule and monthly instalment amounts carefully.

• Look for any hidden fees, such as prepayment penalties or late fees.

• Make sure the terms align with your ability to repay without falling behind again.

• For secured loans, ensure you’re comfortable with the risk of losing your asset if you default.

• Remember, your collateral (such as property) is on the line—defaulting could mean losing it.

• Build a monthly budget to manage your income and expenses.

• Prioritise loan repayments and ensure you’re not spending more than you can afford.

• Set aside some savings for emergencies to avoid relying on credit in the future.

• Even after default, making consistent, on-time payments can slowly rebuild your credit score.

• If you can’t pay the full amount, make at least the minimum to prevent further damage.

• A secured credit card requires a deposit and helps you rebuild your credit score with responsible use.

• Pay off your balance in full each month to keep the momentum going and gradually improve your score.

While credit card default significantly affects your ability to get loans, it's not impossible. Options such as joint loans, guarantor-backed loans, and secured loans are viable for credit card defaulters. However, borrowers must carefully consider the terms, risks, and responsibilities before committing to any loan. Additionally, focusing on rebuilding your credit score will increase your chances of better financial opportunities in the future.

By taking the right steps—whether negotiating with lenders, using a secured loan, or improving your credit score—you can regain control of your finances and work toward a debt-free future.