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Getting personal loans in Australia when you have bad credit, either, paid or unpaid defaults.

Written by

Shaun McGowan

How do I get a personal loan if I have bad credit?

Firstly, it’s definitely possible.

But...

It’s certainly harder, because these days, any missed payments, paid or unpaid defaults will be on your credit file and one of the first things lenders will do is get a copy of it.

Your credit score and history shows lenders your past performance with other companies. They’ll quickly make an assessment on how likely you are to repay them on time and in full.

It’s important to know though, that not all bad credit is created equal.

For instance, if you have paid your defaults off, that is looked at more favourably to unpaid defaults.

Also in this context, a default to an energy company is more favourable to a default to another finance company.

Learn how you can get an approval for a loan with bad credit and some practical steps you can take to improve your credit score before applying.

Why is it harder to get a loan with bad credit?

Like every relationship, it centres around trust. Lenders need to believe that you are going to repay them in full.

All loan applications are based on risk - essentially, the higher the risk the lender believes lending to you is, the more you’ll be asked to pay in interest and most likely fees too.

Not all bad credit is created equal

For instance, if you have paid your defaults off, that is looked at more favourably to unpaid defaults.

Also in this context, a default to an energy company, or a gym for instance is a lot more favourable to a default to another finance company.

 

credit history

How lenders view credit history

For people looking for a personal loan with a bad credit history, the good news is, there are lenders who specialise in loans for you.

credit history applicant

What lenders are looking for

Lenders love boring, or should we say, consistency!

They love it if you've had the same job forever and have been at the same house since you first left home.

Here's an example of how your employment history can influence your approval.

employment history applicant

Are there any other ways to get a loan with bad credit?

Depending on your situation, there are a couple of options you might be able to consider before applying:

Guarantor loans

A guarantor loan requires someone else (usually family members) to take equal responsibility for the repayment of the loan.

In the event that the borrower is unable to make repayments, the guarantor of the loan takes responsibility.

Essentially, this is using someone else’s (better) credit score to make your application look safer.

The No Interest Loan Scheme (NILS)

NILS is a Government initiative that lets Australian residents get a loan with no interest or fees. Amazing! But there are certain conditions:

NILS only allows eligible applicants to borrow up to $1,500 for essential goods, but there’s no credit check required.

Do you qualify for NILS?

  • Hold a valid healthcare or pension card
  • Earn less than $45,000 as a single applicant
  • Earn a combined income of less than $65,000 as a joint applicant

StepUP Loan

Finally, StepUp Loans are low interest, low fee loans if you’re in a low-income bracket and can’t get credit from a bank.

Do you qualify for StepUp? You need to:

  • Hold a valid healthcare or pension card
  • Receive Family Tax Benefit A.

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The first step to improving your credit score

The first step to improving your credit score is pretty obvious: to find out exactly what it is!

The easiest way to do this is to request a full credit history report from one of Australia’s three credit bureaus:

Once you’ve got your credit rating, you’ll be able to see where any slip-ups in the past have caused it to drop.

This is also a great time to review your credit report and see if there are any errors that need correcting!

Once you’re happy that your credit report and score are accurate, you can take steps to improve your credit rating.

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But just like an embarrassing nickname in high school, sometimes even when you’ve moved on, the past has a way of poking its head in and making our present life more difficult.

How so?

Well, even if you made some mistakes a few years ago (especially if it was something serious like bankruptcy), you may still have these shown on your credit file.

Anything in your credit file that might indicate you could fail to meet the repayments will make you seem riskier in the eyes of a lender.

The flip side is, perhaps your circumstances have changed for the better, you might be earning more money and paid down some debt. This is definitely going to be viewed more favourably.

Risk determines things like:

  • How much you can borrow and for how long
  • How much interest you’ll be charged

Long story short, the better your credit file, the better (and cheaper) loans you’ll be able to get.

What's the process from here to get a personal loan?

First, you’ll want to check you meet the basic criteria for applying:

  • Over the age of 18; and
  • An Australian citizen or permanent resident; and
  • Employed or have a regular source of income over $25,000 per year
  • Not currently bankrupt or under a Part IX Debt Agreement

If you meet these criteria, the most important aspect of your application is going to be proving to a lender that you’re trustworthy.

Get prepared.

Work out your budget.

What can you afford to repay comfortably? You may need to adjust your expectations and make sure you’re not borrowing more than you need.

Make sure your bank statements look good. Lenders will ask you to provide these, going back up to 6 months.

They’re going to be looking for things like; regular dishonours, missed direct debits, how regularly your account goes into negative and a bunch of other things. Read more about why lenders need your bank statements.

You’ll need to prepare yourself for loans with higher interest rates and fees, but there’s always a silver lining:

If you get approved and you make perfect repayments for the first year, you'll improve your credit score and you should be able to refinance your loan at a better rate, but make sure you get a loan with no fees for paying out your loan early.

Here are the most popular questions people are asking about bad credit personal loans

Can I get a bad credit personal loan if I’m receiving Centrelink payments?

Yes, it’s certainly possible. Be aware of loans like these as they may have higher interest rates and bigger fees.

Are bad credit loans expensive?

Compared to someone with good credit, yes, this is more expensive as you are deemed to be a greater risk to the lender. Always speak to a financial adviser and accurately assess your ability to meet repayments before applying for a loan.

What are my options if I’m self-employed?

Yes, you can. If you are self-employed, you’ll need to provide additional documentation to get approved, for instance up to 2 years worth of tax returns.

How can I pay less interest on my bad credit personal loan?

To pay the least amount of interest, pay the loan off faster, make extra repayments when you can afford to and make sure you secure a loan with low fees.

The right personal loan can save you $1,000s

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

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

*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $10,000 over 3 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.

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Disclaimer

Money Pty Ltd (trading as Money.com.au) provides information about credit products and is authorised to do so as the holder of Australian Credit Licence 528698. Money.com.au does not compare every Lender in Australia. We are not a broker or credit provider and when we provide information via this website, we are not providing you with a recommendation or suggestion about a particular credit product. When you apply for a credit product via the Money.com.au website, you are not applying with us, you are applying directly with a Lender Partner. Before entering into any credit product from one of our Lender Partners, you should confirm the rates and product information with the Lender. All information on this website is general advice only and does not take into account your objectives, financial situation or needs. You should consider whether this advice is right for you and we encourage you to seek independent financial advice.