Things to Know About Unsecured Bad Credit Personal Loans

Mishaps of not having enough money or being in a financial mess can happen to everyone. And that’s the moment when a cash injection would mean a lot to you. A short-term loan would probably help you get your finances back in order.

But knowing that your current financial situation is chaotic and your credit score is below average, you realize that your chances of getting a new line of credit aren’t great. But they still exist because some lenders in Australia are willing to give you a second chance to get back on your feet.

These lenders have a wide range of products for borrowers with below-average credit ratings. If you don’t need too much money, you can apply for unsecured bad credit personal loans. But before that, you have to do your homework and find the best offer of these loans for bad credit borrowers. 

What this article covers:

What Is Unsecured Personal Loan?

unsecured bad credit personal loans
Unsecured Personal Loans is shown on the conceptual business photo

An unsecured personal loan will do if you need money for some ongoing expenses. It’s a financial arrangement you make with a lender, which doesn’t require you to put up any assets as a guarantee that you’ll return the borrowed money.

Lenders offer unsecured loans between $5,000 to $100,000. But the maximum lending amount can be lower for bad credit borrowers. As for repayment periods, they can go up to seven years, depending on how much money you borrow and the lender’s risk estimate.

No-collateral loans can help you consolidate your debts and improve your credit score. You can also use them to cover unexpected expenses and planned projects, such as:

  • Medical or vet bills
  • Home repairs and upgrades
  • Car repairs
  • Wedding, baptism, or birthday celebration
  • Going on vacation
  • Non-emergency purchases

Lenders will give you a certain amount of money without the risk of repossessing any of your stuff, as might be the case with car or boat loans. Thus, unsecured loans carry less risk for borrowers to be left without valuable assets.

Still, these arrangements are riskier for lenders if you default on loan repayment, as they don’t have anything to pledge and cover their losses. So they mitigate the chances of loan default with higher interest rates and slightly stricter lending terms. 

Can You Get an Unsecured Personal Loan with a Bad Credit?

Despite a bad credit score, lenders won’t reject your application. Instead, they’ll evaluate your ability to repay the money on time based on other parameters. For example, they’ll check your income or current debt (DTI ratio). Based on that, they’ll see if a new loan would be an additional burden on your budget or if you can meet lending terms without problems.

But keep in mind that there’s no such thing as low-interest rate loans for bad credit. The overall loan costs will be higher than if you were a borrower with a stellar credit rating. And that’s the price you have to pay if you need money urgently and don’t have time to work on your credit score.

what bank will accept bad credit

Eligibility Requirements

Lenders in Australia aren’t too demanding in terms of loan eligibility criteria, even when it comes to personal loans for blacklisted clients. Borrowers must be of legal age and live in Australia, i.e., have citizenship or permanent residence. Non-residents can’t apply for unsecured personal bad credit loans.

Also, borrowers must have a regular income. It can be from employment or self-employment, and those on Centrelink benefits can apply, too. Even students with no credit history can apply for small student loans, but they must be employed. In any case, the applicant’s annual income must exceed $25,000, and you must get it paid into your account.

Most bad credit lenders will require no previous loan defaults or bankruptcy records in your credit history. But you can make an extra effort and find lenders who will see through your fingers and make a loan offer to meet your financing needs. However, you must be discharged for 18 months since bankruptcy and work on resolving recorded defaults as soon as possible.

Where to Get a Personal Loan With Bad Credit

Your first stop when looking for the best loan for bad credit will probably be your bank or traditional lenders. But they’ll likely reject your application as soon as they see that your credit rating is below average (below 500). In fact, some won’t even consider you if your credit score isn’t good (about 650).

The viable solution is to improve your credit score in the next few months and try again. But when you need money fast, you probably wonder what bank will accept bad credit applicants. Luckily, you can find many online services and direct lenders willing to work with you. 

Online Lenders

If you go for an unsecured personal loan on the Internet, you need to apply through online platforms that connect you with lenders whose loans match your needs and possibilities. Upon application, you’ll receive several offers in a matter of minutes, and it’s up to you to judge which one is the best.

The advantage of this option is that you don’t have to search for direct lenders and check and compare their offers. Instead, the online lending platform does that for you, narrowing your choice to a few lenders. 

The application procedure is simple, but the response you get from the platform doesn’t mean you’re approved for a loan. It just means you can proceed with the application at the suggested lenders. Upon applying, you’ll get the final answer from them within one day.

Direct Lenders

long term personal loans for poor credit

In the case of direct lenders, which you can find online and offline, you apply for an unsecured personal loan for poor credit without an intermediary. The procedure is fast and efficient, and you can get an instant response to your application. 

However, keep in mind that multiple applications, even for small loans, represent hard inquiries into your credit rating. It means you can make it even worse if you apply to several lenders and get a NO for an answer.

How to Apply for Bad Credit Unsecured Personal Loans Online

When you have a below-average credit score, applying for an unsecured personal loan online is a good option, as it won’t harm your credit file. Another significant advantage is the simple online form filling, which won’t take you more than a few minutes.

Find Reputable Bad Credit Lenders

The step before filling out the applications is choosing an online lender willing to give personal loans to bad credit applicants. So you must do detailed research to avoid scammers and find credible companies.

To get started, check the current interest rates on the market. As already said, interest on unsecured personal loans for bad credit will be high, usually up to 30%. So don’t always believe lenders who advertise super-favourable rates for borrowers with below-average credit scores.

After selecting several legit lending platforms, it’s good to read reviews from past customers. Also, you can contact these lenders and check the quality of their customer support. Ask a few questions and observe how communication takes place and whether it’s timely, clear, and transparent.

File the Application

You won’t have much trouble with online loan applications as it’s a simple procedure. It usually requires personal and employment information. Also, you must state how much money you need and what for (for instance, you want to buy a bike). Be realistic, and don’t ask for a $15,000 loan if you need only $2,000 for your needs.

Next, prepare all supporting documents. You’ll need a copy of any government-issued ID and proof of residence and income (paycheck or bank statement). If necessary, the credit agents will reach out for further explanation.

Review and Compare Loan Offers

low credit score loan approval

After receiving your application, the lenders will do a brief credit check to see whether you qualify for a loan. It’ll be a soft inquiry that won’t hurt your credit score. And if they accept your application, they’ll send you an unsecured loan offer.

Here’s an example of two offers for a $5,000 loan with a repayment period of two years:

  1. The first lender offers an APR (annual percentage rate) of 25%. The establishment fee is $200. So $5,000 + ($5,000 * 0.25 * 2) + $200 = $8,200 – overall loan cost. Divided into monthly instalments, your payment would be $342.67, or if you opt for weekly payments, $85.42.
  2. The second lender has a promo holiday offer at 19,95%, with a $300 establishment fee. $5,000 + ($5,000 * 0.1995 * 2) + $300 = $7,295 – overall loan cost. If you take a chance on this loan, your monthly repayment would be $304 or $76 every week.

As you see, there’s not much doubt about which loan offer is more favourable regarding interest and fees. But you also have to consider other costs, such as monthly fees, early repayment fees, or penalty costs if you default on loan repayment.

Get Money

Once you review lenders’ offers, you make a final decision. You’re not obliged to accept the offer, but if you do, you’ll get a formal contract from the lender with all loan details. Once you sign it and return it to the lender, you can expect funds in your account soon. 

But remember that the speed of approval has nothing to do with how fast money will be on your account. Some lenders offer unsecured loans with instant approval. And if you didn’t ask for too much money, you can even apply for a payday loan with very fast approval. Still, depending on your bank, these transactions can take up to three work days.

Frequently Asked Questions

Is It Possible to Get a Bad Credit Personal Loan with No Credit Check?

Not really. Even if you ask for a small loan, the lenders must ensure you’re able to return the borrowed money. So they’ll assess your credit file to get more information about you, but that usually doesn’t harm your credit score.

Can I Have a Guarantor for an Unsecured Bad Credit Loan?

lowest interest loans for bad credit

Yes, but that’s not always necessary. If you borrow $1,000, lenders will approve this loan even if your credit score isn’t stellar since it’s small and you won’t have problems returning it. But if you ask for higher amounts or lenders assess you as too risky, a guarantor will increase your chances of approval.

Is Secured Personal Loan Better Than Unsecured One for Bad Credit Borrowers?

It depends. Secured bad credit loans are viable options if your financial struggles can’t be solved with unsecured payday loans. If you need more money but your credit score is below average, lenders will ask for something valuable as collateral. 

You can accept this arrangement if you’re sure you won’t default on repayment; otherwise, your valuable asset will be repossessed. 

To Sum Up

Lenders who believe blacklisted borrowers deserve a second chance will provide them with various loan options. These are handy but come with a certain price tag. So unsecured bad credit personal loans can be a band-aid, but don’t think of them as a long-lasting solution. 

Instead, do your best to improve your credit rating and thus ensure more favourable loan terms in the future.

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