Personal loans for bad credit

Your credit rating and history is a listing of how you’ve handled credit agreements, such as personal loans, overdrafts and even things like mobile phone bills. These listings are available to lenders, service providers and banks so that they can make a decision about whether to extend credit to you or not. Your credit rating can also have an impact on the interest rates applied to credit agreements you might be approved for. If you’re deemed to be riskier than average because your credit file has negative listings like defaults and late payments on it, you’ll pay higher interest rates.

If you’re struggling with money

The Financial Counsellors Hotline is open from 9.30am to 4.00pm, Monday to Friday and can offer you free and impartial advice on money management.

If your finances are suffering due to covid-19, then there’s a whole raft of governmental help schemes, so see if you can get some aid before looking at borrowing money.

If you’re behind with utility bills, then you can talk to your providers and try to arrange a payment plan.

The personal loan options for people with bad credit

There are some options for loans if you have a poor credit history.

Secured personal loans

A secured loan needs you to put up some collateral, like a car, jewellery or equity in your property, in order to secure or guarantee the loan. This means that if you fall behind on payments, the lender can claim the asset to make up for the deficit.

Guarantor personal loans

A guarantor loan requires someone other than the borrower to guarantee the payments on the loan. This can be typically a relative such as spouse or parent. The guarantor shares the responsibility for the loan and if you default, they may have to pick up the slack.

Short–term loans

A short–term loan, usually from a payday lender, can offer borrowers smaller amounts – up to $2,000 – for terms of between two and 12 months. These loans look at your current financial circumstances and whether you can repay it within the timeframe.

Are bad credit loans more expensive?

In general, because you might be deemed to be riskier than a borrower with excellent credit, your interest rate will probably be higher, which means that the loan will cost more overall. There may also be establishment and management fees involved.

Lenders cannot charge more than the following rates for fees:

Loans of less than $2,000 with repayment terms of 16 days to one year can’t ask for an establishment fee of 20 per cent of the principal or a monthly fee of four per cent.

Loans of between $2,001 and $5,000 with repayment terms of 16 days to two years can’t charge establishment fees of more than $400 and the maximum interest rate is 48 per cent, including fees and charges.

Loans of more than $5,000 with repayment terms of 16 days to two years mustn’t charge interest rates of more than 48 per cent, including fees and charges.

What to do before applying for a loan if you have bad credit

Loans aren’t just approved (or not) based on your credit rating; there’s a range of eligibility criteria and things you have to consider. Before you apply, you should make sure you fit these criteria, which include your credit score.

Check your credit rating

If you know what your credit score is then you’ll have a better idea of what you can do to improve it, as well as a better idea of your chances.

Talk to a financial counsellor

The Financial Counsellors Hotline on 1800007007 can help you to make the right decisions for your current circumstances and aims.

Avoid making lots of credit applications at once

Applying for two or more loans or other credit arrangements at one time, or within a short period of time, can signal financial distress to lenders and scupper your chances of approval. Make one application at any one time and wait for the decision before making your next move.

Use a loan calculator

Using a personal loan calculator will tell you what your repayments are likely to be for the amount you want and the repayment term. If it’s well within your budget, you stand a better chance of approval. If your parameters mean the repayments are uncomfortable, look at smaller amounts or longer repayment terms.

Will I know if I have a bad credit rating?

Each lender will have its own definition of bad credit, but in general, a rash of missed or late payments, defaults, bankruptcies and similar will mean you have a bad credit rating.

Your file will also hold other financial information about late utility bill payments, multiple credit applications and exceeded overdraft and credit card limits. Good behaviour is featured as well, so if you always pay your phone bill ahead of time, that’s great. However, this alone won’t do much to overturn your poor rating. If a loan only accepts applications from people with good or excellent ratings, don’t apply; you almost certainly will be rejected and the application will leave a negative footprint.

Loans for bad credit applicants

The NAB Unsecured Fixed personal loan offers borrowers interest rates of between 9.99 per cent p.a. and 18.99 per cent p.a. depending on your circumstances. Most applicants get the headline rate of 12.69 per cent p.a. (comparison rate 13.56 per cent p.a.), but a bad credit score may mean rates nearer the maximum. Loans range between $5,000 and $55,000.

The Moneyplace Unsecured personal loan offers borrowers with an average credit rating interest rates of between 17.99 per cent p.a. (comparison rate 19.48 per cent p.a.) and 20.99 per cent p.a. on loans ranging from $5,000 to $20,000.

The Harmoney Unsecured personal loan offers borrowers interest rates of between 6.99 p.a. (comparison rate 7.79 per cent p.a.) and 26.65 per cent p.a. on loans ranging from $2,000 to $35,000.

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