Bad Credit Personal Loans: What Are Your Options?

Bad credit loans are viable options for those not considered ideal candidates by banks and traditional lenders. These can be people with poor credit ratings and short or no credit history. 

Lenders ask for your credit score as a parameter of your financial behaviour and credit trustworthiness. And if your credit score is lower than what credit agencies consider good, your chances of getting a loan from most traditional lenders are low. 

Most Australian banks won’t even consider your application if your credit rating is lower than 700. Even if you manage to get a loan with a low credit score, it’ll probably be under strict conditions, especially short-term financial arrangements.

Luckily, bad credit personal loan lenders understand your current financial situation. They have special offers for applicants with below-average credit. However, they’ll give you money under certain conditions, such as a higher interest rate or a shorter repayment period.

The procedure for bad credit personal loans is simpler than applying at banks. Also, you have several loan options at your disposal, depending on the amount you need, the assessment of your credit risk, and the reason why you need a loan.

What this article covers:

What Loans Can You Apply for With a Bad Credit Score?

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Low credit score loans in Australia are designed to suit the needs of different borrowers.

Payday Loans

A payday loan is a short-term loan that covers expenses until you get your next paycheck. These are amounts up to $2000, known as small personal loans for people with poor credit rating, although some lenders also allow medium loans up to $5000. 

That extra money comes in handy when sudden expenses, like a car repair or medical emergency, pop up. Moreover, payday loans are unsecured, so you don’t have to pledge anything as collateral. 

Lenders usually don’t ask why you need money when applying—you can get a new bike or go on a holiday if you want. But they oblige you to repay the loan amount plus fees within the agreed period, usually a few weeks. Some lenders can extend repayment periods up to a year, depending on the amount borrowed. 

Payday Loans Costs

You can research lenders in Australia who offer payday loans. Remember to compare the lending conditions, especially fees that can add up to the overall loan costs. 

For instance, no certified lender will charge interest if you ask for a $2,000 personal loan with bad credit. But you’ll pay an establishment fee and monthly service charges. These are 20% and 4% of the loan amount, respectively. State laws set these maximums so that no lender can change them on their own.

If you borrow between $2,001 and $5,000, you’ll pay a flat rate establishment fee (usually a few hundred dollars split across payments). Plus, you’ll pay about 48% Annual Percentage Rate (APR). Moreover, lenders might also charge other fees, which should be clearly stated in your contract. 

Once aware of all costs of getting a payday loan with bad credit in Australia, you must be sure you can afford it. If not, you can contact a financial counsellor to discuss your options. They can help you figure out a payment plan that’ll work for you.

How to Apply for Payday Loans With Bad Credit

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Nowadays, lenders usually provide a simple online application form and the outcome within a few minutes, even instant approval for good candidates. For starters, they’ll ask for personal information and documents, like your ID, passport, Medicare card, utility bills, and proof of income. 

Then, you’ll have to confirm your employment status and some job details. And you need to provide online bank statements for the last 90 days and reports to prove your income, like wages or Centrelink payments. 

When asking for a personal loan with a bad credit rating in Australia, you get pre-approval first. The formal approval takes longer as lenders still have to check your application. But in any case, you’ll get the response fast. If approved, you’ll sign a digital contract and have money in your account on the same day.

Unsecured Loans

Unsecured bad credit personal loans in Australia aren’t reserved only for borrowers with immaculate credit history. An increasing number of lenders offer unsecured loans for those who don’t have a stellar credit score. 

As the name implies, unsecured loans don’t require collateral. It means you’re less likely to lose your money should you default on the loan. Lenders that help with bad credit usually allow you to apply for any sum between $2,000 and $50,000.

In the case of unsecured loans, the lenders’ primary concern isn’t your poor credit score but your current financial situation and risk assessment. So they’re willing to lend you money despite your bad credit rating. But they still have to check your credit file for recent bankruptcies, possible lawsuits due to loan defaults, etc. 

Costs of Unsecured Loans

These loans may be a quick fix when you need fast cash for a car repair or sudden expenses like dental work or surgery. If approved, you get a lump sum for your needs. 

Depending on your current situation and risk assessment, the lender agrees to lend you money. As they can consider the reason behind your loan application, you should always ask for money you can pay back without problems. If you ask for an amount that’s not in line with your finances, you’ll be rejected.

After that, you must repay the lent sum over time under conditions agreed in the contract. In general, the repayment period for unsecured loans varies between one and seven years. And you pay back the principal plus interest and fees. 

There’s no collateral on bad credit unsecured loans in Australia, so lenders must protect themselves somehow. They approve these loans with high-interest rates, which can be fixed or variable. Rates can be as low as 4 to 8% and up to 20%. 

Some lenders operate on a risk-based interest rate system, meaning they determine your interest rate after assessing your risk as a borrower. As a result, the lending terms can be more or less favourable. 

How to Apply for Unsecured Personal Loans With Bad Credit

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The application procedure for unsecured personal loans is similar to payday loans. You need personal documents, income/employment details, and about 10 minutes to fill in the form. As this loan requires no collateral, there’s no need for additional documentation.

It’s desirable to get pre-approved for a small bad credit personal loan. That still doesn’t mean you’ll get a loan, but it can be a good indicator of your financial capability to lenders. Plus, it’ll help you estimate your ability to repay a loan on time.

Secured Personal Loans

Secured personal loans are legal contracts between you and a lender that require pledging some asset as collateral. In return, they give you money. This arrangement is handy when you need larger sums to put your finances in order. 

Since you put up something valuable as collateral, lenders are more likely to approve a big loan with bad credit and offer more favourable lending terms. You can pledge anything from cars to art pieces. If you don’t have anything valuable, you can use the item you plan to buy with a loan as collateral.

The general rule is that the pledged item must be more valuable than the amount you plan to borrow. In the worst case scenario, i.e., you fail to repay instalments, the lender will use collateral to recover the loan amount you still owe.

Secured loans for borrowers with bad credit are easy to obtain, even when you apply for higher amounts of money. But they’re not without downsides; lenders may repossess the collateral if you default on debt repayment. It’s a risk you have to accept, but do your best to prevent it from happening.

The good thing about secured loans for bad credit is that lenders can offer you a solution even when you have repayment issues. These can be options such as loan refinancing or debt negotiation under conditions that suit your financial situation. The goal is to find a manageable solution for both parties.

Costs of Secured Personal Loans

There’s no such thing as cheap loans for a bad credit rating, but you can get more favourable lending terms when you apply for secured loans. Also, you can ask for as much as $100,000 (but just because you can doesn’t mean you have to) and pay fewer fees. 

This type of credit line usually implies a variable interest rate (4 to 8%), which can go up or down depending on the APR trends. On the other hand, you can also apply for loans with fixed interest (up to 12% for a loan lifetime).

Also, you should factor in application expenses and establishment fees. Depending on the lender, there might be extra costs, like early repayment fees. So take them all into account when lurking for the best bad credit personal loan in Australia.

Initial costs of borrowing money through secured loans might seem lower due to lower interest. But in the long run, you’ll pay more instalments, thus more interest. So the overall loan cost will be higher.

How to Apply for a Secured Personal Loan With Bad Credit

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Start by searching for lenders that’ll work with bad credit borrowers. Their online application forms are more or less the same. You provide personal information, employment and income details, and additional papers for collateral.

Also, you have to declare the amount of money you need and why you need a loan. But note that online lenders can’t just accept to lend you any sum. The loan amounts they approve will depend on various factors, like your income and outgoings, residential status, number of dependents, etc.

Make sure to have all documents on hand to ensure prompt upload. And once you have completed the application form, a credit consultant will contact you to check the application details.

The application process for a secured personal loan with bad credit history can take just a few minutes, but due to documentation checks, you’ll have to wait a few days for a response. Most lenders will come back to you in the next 72 hours. And if everything goes well, you’ll get the money on the same day.

Bad Credit Loans With a Co-Signer

Adding a co-signer to your unsecured loan for bad credit can be of great help if you have trouble qualifying for a loan on your own. It’ll boost your chance of approval and help you get better loan terms. 

Loan guarantors reduce the risk to the lender, as they act as collateral. That means your co-signer guarantees you’ll settle your debts within the agreed terms. So if you have a friend or family member willing to help you, your chances of approval are higher.

Co-signers for poor or no credit personal loans must have a solid credit history and a stable income. These people should also have permanent employment, Australian residency, and a fixed address. 

They must understand their rights and responsibilities in this agreement and be willing to take certain risks, like paying your missed instalments or the entire loan amount in case you default on a loan. If they don’t, the lender may take legal action against them. That can damage their credit and may affect their ability to get a loan on their own.

How to Apply for a Co-signer Loan

After deciding to apply for a bad credit personal loan with a co-signer, you should fill in the information for both you and your guarantor in the online form. That refers to personal and financial details. 

The lender will ask for a co-signer’s proof of employment, income, and good credit score to ensure they’re a good fit. This type of loan is a viable option not only for applicants with below-average credit but also for part-time or casual workers, young applicants, or students with no credit history.

Are There Bad Credit Personal Loans With No Credit Checks?

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If you’re convinced that your application will be rejected, the solution may be to bypass conventional lenders. You can seek help from private lenders and banks that’ll give loans with bad credit. In some cases, they won’t even do a credit check.

When applying for this loan, the lender won’t conduct a classic checkout of your credit history. It means there will be no hard inquiries on your credit report, which comes in handy if your score is below average.

Of course, that doesn’t mean your application will be accepted without any verification. Lenders still need information that shows your creditworthiness, such as your employment status and insight into your current finances (for example, a bank statement). 

Lenders who provide bad credit loans with no credit check most often give them in the form of payday loans. That means the interest rates and fees on such financial arrangements are high, so you should use them when you have no other options.

How to Choose the Best Bad Credit Personal Loan in Australia

When you’re trying to get a loan with bad credit, there are many factors you need to consider. These include the loan length, the repayment terms, and the amount you need to borrow.

Loan Amount

Banks that’ll give loans with bad credit determine the minimum and maximum amounts you can apply for. These range from a few thousand to several hundred thousand dollars. 

To avoid overindebtedness for no reason, you should know how much money you really need and where to get it. If you apply for more than you need or the lender assesses that your financial abilities aren’t in line with your application, you won’t get a loan.

Loan Length

Loan length is an agreed period for debt repayment. It’ll depend on the amount you borrow and the loan type. Remember, it can affect the overall loan cost —the longer the repayment period, the more interest you pay.

Payday loans and small personal loans for bad credit in Australia have a term of up to a year. For unsecured loans, this period can be several years, depending on how much money you take. And for secured arrangements, a bank can offer loan terms of up to 10 years. 

Repayment Costs

Lenders for bad credit loans agree to give you money under certain conditions. One of them is paying interest and fees for their service. You have to be clear with these to estimate the overall loan costs and see if that works for you.

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Bad credit lenders offer personal loans with fixed or variable interest. The first one gives you more security and an instalment that’ll remain the same over the loan lifetime. The latter provides more flexible repayment terms, as your instalment can be lower when the APR decreases.

When it comes to downsides, a fixed bank loan for bad credit can be costly at first. But in case the global interest rate goes up, you’re safe. As for a variable interest rate, it’s closely related to APR. So when this parameter goes up, your instalment will increase.

How to Know Whether Your Credit Score Is Bad

Your credit score reflects your payment history, previous and current debts, and credit utilization rate. The longer your financial history is, the higher your score will be. This parameter ranges from zero to 1,000 or 1,200, depending on which credit agency you go through.

Maintaining a good score requires you to be a regular payer and not make unnecessary costs and overindebtedness. Any negative financial behaviour will reflect on your credit score. 

Once this parameter drops below 500 (Australian credit score providers set it as an average), it shows you’re not financially stable. Many people neglect the importance of this parameter until they apply for a loan or credit card. 

A below-average score isn’t the end of the world, but it doesn’t give you many options. Sure, getting finance with bad credit is doable, but it’s always better to improve this parameter. The better it is, the more favourable loan you can get.

How to Improve Bad Credit Score

Increasing your credit score can be complicated, but it’s possible. The best way to start is to check your credit report. That’ll allow you to see if there are any unpaid balances or missed/late payments that could hurt your score.

Paying down your debt can help your score. It’ll indicate an improvement in your finances. Meanwhile, avoid making new debts and unnecessary expenses. These positive actions should reflect on your credit score within a month.

Another thing that hurts your credit rating is the number of loan applications. These are hard inquiries into your credit score, and too many can harm it. Try to avoid these and apply for a bank loan with bad credit only when necessary.

Finally, you’ll want to look for errors on your credit report. If you spot any inaccurate or outdated information, you should dispute it with the credit bureaus. It can improve your score, but you must provide valid proof to support your claim.

Good Reasons to Take Out a Loan with Bad Credit

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When your credit score isn’t great, you don’t really need additional borrowing. Still, there are urgent situations when taking a loan is necessary. And even with extremely bad credit, personal loans can be a good solution for your problems.

Debt Consolidation

Debt consolidation is a valid reason to apply for a loan, even when your credit score is bad. It’s an excellent way to gather all your expenses into a single instalment and get your finances in order. And after you settle your multiple debts, you can free up some extra cash to work towards other goals. 

Big-Ticket Purchase

Any big purchase is a financial commitment that requires a lot of time and money. While some of these items are essentials, others can be luxurious. And applying for a bad credit personal loan is only justified in the first case when you have to upgrade or replace old items.

For example, you can ask for personal loans for a bad credit score to buy home appliances, like a washing machine or TV. Also, you can get one of these if you plan to buy a boat or a car. And since your credit score isn’t stellar, you might have to opt for a secured loan or one with a co-signer.

Medical Expenses

Sudden expenses can pop up when you least expect them. For example, you might get ill or hurt and thus end up in a hospital. And while your recovery is a priority, you can’t help but wonder how you’ll pay your medical expenses.

You can apply for a personal loan with bad credit to help you with these emergency costs. It can help you spread your debt over time and make payments on friendlier terms. Before that, negotiate repayment options with the hospital, your healthcare provider, and your insurance company. 

Building or Improving Credit History

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If you want to improve your credit, you can take out a personal loan and get it on the same day. It can help you get back on your feet and work towards boosting your credit (by paying it back on time). And even if lenders don’t consider you a reliable borrower due to your below-average score, you can get a second chance loan with a bad credit score. 

Personal loans for bad credit history can also work for people with short or no credit history. If you’re new to credit, you might need a co-signer to guarantee your borrowing abilities. But if you make timely payments and don’t make excess debts, you’ll pave the way to good credit.

Wrap Up

Below-average credit rating shouldn’t discourage you from borrowing money when you need it. Personal loans for bad credit are designed to help you get out of financial trouble. But before you sign, do your homework and research your options to find the loan that matches your needs and financial situation.

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