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Published April 27, 2023
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How to Get a Personal Loan with Bad Credit

It's harder, but not impossible, for Australians with a low credit score to be approved for a personal loan. You may have fewer lenders to choose from, and the costs may be higher.

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It is possible to get a personal loan with bad credit in Australia, but there are certain requirements and risks to be aware of.

Understanding how lenders evaluate your credit report and which lenders willing to approve borrowers with bad credit can increase your chances of getting the personal loan you need. 

Is it possible to get a personal loan with bad credit? 

Yes. There are personal loans designed for Australians with bad credit, but they’re not typically available from traditional banks and credit unions. You’ll have to seek out a lender that specialises in bad credit personal loans, and you may have to provide extra documentation during the approval process.

When applying for a personal loan, even bad credit lenders may take a look at your credit score, and use it to make a decision about how likely you are to pay back the loan. If they consider you high-risk, they may charge a higher rate of interest, or deny the loan application entirely.

As a general rule, any credit score less than 500 may be considered too low for a personal loan.

» MORE: What is a good credit score?

How bad credit personal loans work

A personal loan is a pre-set amount of money borrowed from a bank, credit union or online lender. You repay the loan with interest over a fixed term, usually several years. The interest rate is fixed or variable, much like a mortgage. 

Generally, personal loans allow you to borrow up to $100,000, with interest rates that start around 7%, and are available from traditional financial institutions.

Bad credit personal loans, on the other hand, may be limited to a maximum loan amount of around $30,000, may have interest rates starting around 15%, and may only be provided by special bad credit lenders.

Bad credit personal loan eligibility requirements

The general qualification requirements for a bad credit personal loan are similar to a standard personal loan:

  • Be at least 18 years of age.
  • Be an Australian citizen or permanent resident.
  • Be able to prove a stable source of income, such as regular employment.
  • Not currently be in a period of bankruptcy or Part IX debt agreement.

Additionally, you may be asked to provide proof of income and debt levels going back six months, versus a standard personal loan which might only require three months of documentation.

What to watch out for when applying for personal loans for bad credit

When searching how to get a loan with bad credit, be wary of websites that promise ‘$50,000 approved in seconds, no paperwork’, especially if you don’t recognise the company. These lenders target people with bad credit, offering fast loans with exorbitant fees. Always read the fine print. 

If possible wait until you’ve built up your credit score, so you can secure a better deal. Think of a personal loan as a long commitment, like a car loan. If you’re going to be paying it off for five, six or seven years, aim to get the best interest rate and terms. 

Make yourself less risky to lenders. It’s time well spent for your financial future. 

How to get a personal loan with bad credit 

You can get a personal loan with bad credit while working to boost your credit standing. 

Check your credit score

To improve your credit score, you need to know what lenders see. Check your score through one of the three major credit reporting bodies: Equifax, Experian or Illion. 

Know what you can afford 

Review your income and expenses. What’s coming in and out of your bank? Is there room for a personal loan repayment? 

Put that figure aside for 1-3 months 

This is important for two reasons: to prove to yourself that your lifestyle allows for that repayment, and to show the banks that you have some money in savings. If time allows, use this period to tidy up your finances so you present strong bank statements when you apply. 

Show stability and support 

Banks love customers who have stable income. If you’ve just started a new job, it’s best to bring in a guarantor to strengthen your application. Only bring in someone who you fully trust and who knows your situation. 

Shop around 

Although the terms might not be as competitive with bad credit, you’ll still have companies offering you a personal loan. Whether it’s a bank or a broker, don’t sign on with the first one to approve you. Review all your options, get advice from your accountant or a credit helpline, and make an educated decision. 

As with all things financial, always keep your goals at the forefront of your mind when making decisions. Taking out a personal loan to consolidate a debt will be more urgent than a home improvement project. Smaller cash injections from alternative sources, such as the NILS program or a 0% interest rate credit card, could suffice. 

Personal loans, just like credit cards, can be a strategic financial move or a debilitating stumble. Take the time to find what will best help you achieve your goals.

Frequently asked questions about getting a personal loan with bad credit

Where can I get a personal loan if I have bad credit?

Start with your current bank or credit union. Even though these institutions are unlikely to accept a low credit score, they may be willing to work with you if you’re already a customer. Online lenders that specialise in bad credit personal loans are likely your best bet, but be sure to do your research before applying or signing a contract, to make sure you won’t be overcharged or taken advantage of.

What are the easiest loans to get with bad credit?

There are online lenders designed specifically for people with poor to average credit. While it’s probably the fastest way to get credit, it’s often the more expensive option. You might pay up to 20% interest.


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