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Personal Loans for Bad Credit

  • Compare a selection of bad credit personal loans & rates from multiple lenders available to you

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Why compare bad credit personal loans with Money

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What are the interest rates on bad credit personal loans?

The average interest rate for loans with bad credit (0-459 credit score) is 25.25% p.a. That’s according to personal loan statistics compiled by Money.com.au’s recent analysis based on real quotes provided to borrowers. The average rate for borrowers with a credit score between 460 and 660 is 20.07% p.a.

But remember, your interest rate will be tailored to you and some bad credit borrowers may qualify for a lower rate. For example, if you pay a deposit towards your finance or have a guarantor, you may be able to secure a lower rate.

Here’s what you need to do to find the best bad credit personal loan:

  • Pay close attention to the loan’s comparison rate as this factors in how fees impact the overall cost of the loan.
  • Use a personal loan calculator to work out the cost of different loan options based on the interest rate and fees.

When comparing bad credit personal loans, the comparison rate estimates the overall cost of the loan per year, including both interest and fees.

Compare bad credit personal loan rates & repayments

Loan amount Weekly repayment (10% interest) Weekly repayment (20% interest) Weekly repayment (30% interest)

$5,000

$25

$31

$37

$10,000

$49

$61

$75

$15,000

$74

$92

$112

$20,000

$98

$122

$149

$25,000

$123

$153

$187

$30,000

$147

$183

$224

Bad credit personal loan repayment comparison examples are calculated using weekly repayments with a fixed interest rate on a 5-year term. They do not include any fees that may be charged by a lender in addition to interest.

What is a bad credit personal loan?

A bad credit personal loan is a loan that’s designed for borrowers who have a low credit score. This is usually because the borrower has defaults or other negative information on their credit report. The loan can be used for a range of purposes, including debt consolidation, paying for a holiday or financing a home renovation.

How do bad credit personal loans work?

In many respects, bad credit loans work in the same way as other personal loans. You borrow a fixed amount of money for a fixed term (duration) and repay it in weekly, fortnightly or monthly instalments, plus interest and fees.

The key difference is that bad credit personal loans are riskier for lenders. Because of this, borrowers can generally expect to pay higher interest rates and fees, and may be limited in how much they can borrow.

Bad credit personal loans vs standard personal loans: What’s the difference?

Standard personal loan Bad credit personal loan

Loan amounts

Up to $100,000

Up to $30,000 (but varies by lender)

Interest rates

Starting from around 6%

Starting from around 9%

Available from

Major banks, credit unions and online lenders

Specialist bad credit lenders

Proof of income & expenses required

Usually 3 months

Up to 6 months

Are you eligible for a bad credit personal loan?

First, you’ll want to check you meet the basic criteria for applying. You must be:

  • Over the age of 18
  • An Australian citizen or permanent resident
  • Employed or have another regular source of income
  • Not currently bankrupt or under a Part IX debt agreement (a legally binding contract between you and your creditors)

Lenders will consider:

  • Your income
  • How long you've been in your current address (longer is better)
  • Any assets you own (i.e. house, car, boat)
  • The amount you’re borrowing
  • The term of the loan
  • How long you’ve been in your current job for (longer is better)
  • Your other expenses and debts (e.g. energy bills, credit cards)
  • Whether you have dependents
  • The purpose of the loan
  • Your credit history

What do lenders look for on your credit history?

1

The type of default(s) listed on your credit file

Not all credit defaults are viewed the same. Non-financial defaults (i.e. a phone bill) are generally less of an issue for bad credit personal loan providers. Financial defaults (e.g. a missed loan or credit card payment) are more serious. A default can stay on your credit report for up to five years, according to Equifax.

2

Paid vs unpaid defaults

A specialist lender will consider whether any defaults have now been repaid. Paid defaults are less of an issue. They may also consider whether you’re making progress towards repaying any defaults that are still outstanding.

3

How current the information on your credit file is

Specialist bad credit lenders will factor in the age of the information on your credit file. For example, they may still consider your application if you were discharged from a debt agreement more than 12 months ago.

4

The current picture

Your credit history is based on, well, history. If your overall financial position has improved in the meantime and you’re in stable employment, a bad credit lender will weigh this up against any negatives from the past.

Secured vs unsecured bad credit personal loans

There are two types of bad credit personal loans:

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Secured bad credit personal loans

You offer up an asset to secure the loan (e.g a car). The lender can sell the asset to recoup its costs if you don’t repay the loan. It may be easier to be approved because there’s less risk for the lender. Interest rates are generally lower on secured loans for the same reason.

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Unsecured bad credit personal loans

With an unsecured you don’t put up an asset as security. The lender cannot sell an asset to get its money back if you default. The approval process may be stricter because the lender is taking on more risk. Expect to pay a higher interest rate if you’re approved.

8 must-read tips for bad credit loan approvals

1

Check your credit score before you apply so you know if you’re in a good position to be approved. Knowing your credit score can also help you negotiate a better deal, according to Moneysmart. You can also request a free copy of your credit report from one of Australia’s main credit bureaus (Equifax, illion or Experian) every three months.

2

Look at your budget (your income and expenses) and work out how much you can afford to make in regular loan repayments.

3

Based on that, calculate what you can afford to borrow in total.

4

Put your repayment amount into a savings account for 6-8 weeks before applying. This will prove to the lender that you’ll be able to afford the repayments.

5

Make sure your last six months worth of bank statements look good. Regular dishonours, missed payments or gambling transactions could be red flags.

6

If you’ve just started a new job or changed address, it may be best to wait until you’ve been there for six months before applying. Lenders like to see stability.

7

Consider asking someone you trust if they will act as a guarantor for the loan. The guarantor agrees to be responsible for the loan if you cannot meet the repayments.

8

Lastly, consider carefully if now is a good time to take on debt. It may be better to wait until your financial situation and credit score have improved.

Ready to compare bad credit personal loans?

Compare your best offers from multiple lenders. There’s no obligation and checking your rates won’t impact your credit score.

Personal loan guides & resources

Not sure about the next steps? Our guides and resources can help.

FAQs about personal loans for bad credit

If you urgently need a loan but have bad credit, your options will be limited. Mainstream banks and credit unions typically reject such applications. However, specialist lenders who cater to individuals with low credit scores may offer personal loans. These lenders specialise in providing loans to those with imperfect credit histories.

Not necessarily, as it’ll depend on why you have bad credit. If you no longer have any unpaid defaults and you’re not currently bankrupt or subject to a Part IX debt agreement, it may be possible to get a bad credit loan.

Assuming you also meet the lender’s other eligibility criteria.

However, you will have fewer options to choose from if you need a bad credit loan. If you’re struggling to find a bad credit personal loan, you could consider working with a personal loan broker.

Yes, you might qualify. Lenders evaluate your application for a bad credit personal loan by assessing your total income, including Centrelink payments, against your expenses. If you can prove you'll manage repayments, you stand a chance of approval despite bad credit.

Depending on your situation, you may be eligible for a no interest loan through the No Interest Loan Scheme (NILS). NILS is a Government initiative that lets Australian residents get a loan of up to $3,000 with no interest, fees or credit checks. NILS can only be used for essential purchases, like rent, home appliances or car repairs.

Do you qualify for NILS?

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  • Earn less than $70,000 annual income before tax as a single person (or $100,000 annual income before tax if you have a partner or dependents); or
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  • Have experienced family or domestic violence in the last 10 years; or
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  • Have a Health Care Card or Pension Card
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  • You must also be able to prove that you will be able to repay the loan.

Yes, bad credit loans tend to be more expensive. They typically carry higher interest rates and sometimes additional fees compared to loans for individuals with good credit. This is because lenders view borrowers with bad credit as higher risk, necessitating higher costs to offset potential losses.

Potential losses for a lender is the risk of not receiving full repayment of the loan amount. When lending to individuals with bad credit, there's a higher likelihood of missed payments, defaults, or even complete non-repayment of the loan.

This will depend on your credit history, your other financial circumstances and what you need the loan for. In general, when looking for a the best bad credit loan for you, consider the following factors:

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  • The eligibility criteria
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  • The interest rate
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  • Fees charged
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  • The term (duration) of the loan
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  • How flexible the repayments are (weekly, fortnightly or monthly ideally)
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  • Can you make extra repayments without penalty?

Yes, you can still qualify for a bad credit personal loan if you’re self-employed. In the absence of payslips, you’ll need to provide alternative documentation to be approved. For example, up to two (2) years worth of tax returns.

To save on interest on your bad credit loan, shop around for the lowest interest rate you can find, select the shortest loan term you can afford and make extra repayments to pay the loan off faster if you’re able to. Also consider applying for a secured loan if you can as these generally have lower interest rates.

Once you have been repaying the loan for more than 12 months, you could also consider refinancing the personal loan to another lender. A solid repayment record is likely to have helped your credit score to improve, meaning you might be eligible for a cheaper rate.

Sean Callery Editor Money.com.au

Written by

Sean Callery

Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.

Shaun McGowan Money.com.au founder

Reviewed by

Shaun McGowan

Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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