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Bad credit debt consolidation loans Australia
Debt consolidation is a popular technique for getting on top of debt. If you have a low credit score you want to improve, it can be particularly appealing.
You see, consolidating debt helps you repay your debt faster and this could contribute to rebuilding your credit score.
Analysis by Money.com.au shows that almost two-thirds (63%) of debt consolidation loan requests are from borrowers with a credit score below 600. However, this is a score that many traditional lenders will not accept.
If you're in this position, understanding where you can get a bad credit debt consolidation loan is a great place to start.
Can I get a debt consolidation loan with bad credit in Australia?
This will depend on your situation, but in general it is possible. See, there are lenders who specialise in helping borrowers with bad credit.
Including by offering debt consolidation personal loans.
Whether or not you will qualify will come down to the specifics in your credit report. Plus your current financial situation.
How do bad credit debt consolidation loans work?
With a debt consolidation loan you’re combining multiple debts into a single loan. These debts could include credit cards, other personal loans and buy now pay later accounts.
Bad credit debt consolidation loans are ones aimed at borrowers with bad credit. This kind of loan will work similarly whether you have good or bad credit.
But there are some important differences to know about.
How are debt consolidation bad credit loans different?
The main differences between debt consolidation bad credit loans and standard loans are:
- You’ll need to apply with a specialist lender (banks and credit unions generally look for a good credit score).
- You may be asked for extra information on your credit history and finances when applying.
- There may be a lower limit on how much you can borrow (e.g. up to $30,000).
- The interest rate on the loan will likely be higher.
What are the interest rates on bad credit debt consolidation loans?
Bad credit debt consolidation loan interest rates in Australia typically start from around 15% p.a. but can be significantly higher depending on the borrower and their situation.
Analysis by Money.com.au shows the average personal loan interest rate among borrowers with the lowest credit scores (less than 460) is 25.25% p.a. That's compared to 14.64% p.a. which is the average rate for debt consolidation loans among all borrowers.
As the table below shows, the interest rate can make a significant different to the regular repayments on a debt consolidation loan. Finding the best rate you can could save you thousands over the life of your loan.
Best bad credit debt consolidation loan interest rates comparison
| Weekly repayment (15% interest) | Weekly repayment (20% interest) | |
|---|---|---|
$5,000 | $27 | $30 |
$10,000 | $55 | $61 |
$15,000 | $82 | $91 |
$20,000 | $109 | $122 |
$25,000 | $137 | $152 |
$30,000 | $164 | $183 |
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Benefits of debt consolidation for people with bad credit
Potential benefits of consolidating debt for borrowers with bad credit include:
- You’ll have a single debt repayment instead of several.
- You may be able to get a lower interest rate than what you currently pay.
- There is a fixed repayment plan for the loan, meaning a set date for paying it off.
- Repayments can be weekly, fortnightly or monthly.
- Making repayments more manageable so you can stay on track may help your credit score to improve.
How to compare bad credit debt consolidation loans and lenders
1
Compare interest rates
Debt consolidation loans for bad credit borrowers can come with higher rates than other loans. The key is making sure your rate is as low as possible. And IDEALLY, that it’s lower than the rates on the debts you’re consolidating.
2
Look for low fees
For debt consolidation to be worthwhile, it’s important to avoid high fees. Aim to minimise the upfront and ongoing fees you’ll pay with the new lender. Remember there may also be fees for closing out your old loans.
3
Check the comparison rate
The comparison rate will give you an idea of the actual cost of your bad credit debt consolidation loan per year, including interest AND fees. Don’t be fooled by a low interest rate that seems too good to be true.
4
Consider the loan term
If you have bad credit, repaying your debt consolidation loans as soon as possible may be the priority. Just be sure to balance that with being able to afford the higher regular repayments on a shorter term. Some loans also allow you to choose a longer term but make extra repayments and pay it off early if you can afford to pay more.
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Calculate the total cost of the loan
Knowing your regular repayment amount is one thing. But be sure to also work out the total cost of the loans you’re comparing over the full term. Ultimately, you want to make sure that the loan won’t end up costing you more.
Calculate loan costsCalculate loan costsDo I qualify for a bad credit debt consolidation loan?
You can generally apply for a debt consolidation loan in Australia if you are:
- Over the age of 18; and
- An Australian citizen or permanent resident; and
- Employed or have a regular source of income
On top of these basics, the lender will do several other checks.
This is particularly true with bad credit borrowers.
How do lenders assess bad credit debt consolidation applications?
The lender will look at your income and other expenses to make sure you can afford to repay the loan comfortably
Of course, they will look at your credit history too. This is why it can be a good idea to do a free credit score check before applying so you know what kind of position you're in.
But unlike a traditional lender, bad credit lenders take a closer look at why you have bad credit. And what you have been doing about it.
Below are the main factors lender will consider.
Type of default
Financial versus non-financial defaults
Financial defaults, like missing credit card payments, are more of a red flag than non-financial defaults, like missing payments on a streaming subscription.
Paid versus unpaid
If you have since paid off your defaults, or are making steady progress towards paying them, a specialist bad credit lender will take that into account.
In short, if your credit record suggests that you’re struggling to meet the repayments on your current debt, the lender may be reluctant to help you consolidate them.
The situation is similar if you are currently bankrupt or in a Part IX debt agreement.
Most lenders won't give you a bad credit debt consolidation loan until you have been discharged for at least 12 months.
In most instances, debt consolidation loans are unsecured personal loans. But some lenders may be more likely to approve your loan if you provide an asset you own as security.
How to apply for a bad credit debt consolidation loan
When assessing applications for a bad credit debt consolidation loan, lenders will ask for information about your financial and living situation:
- Income and employment verification (employment contract, payslips)
- Bank statements for up to six months
- Valid ID (e.g. driver licence)
- Proof of address (the longer you’ve been at the same address, the better)
- Details of the debts you are consolidating (loan and credit card statements)
Is a bad credit debt consolidation loan right for me?
Debt can be expensive if you have bad credit, and unpaid debts can further damage your credit score over time.
But applying for a new loan that isn’t suitable could also affect your credit score.
For example:
- Your application could be declined if you’re not eligible.
- You might be approved but ultimately struggle to keep up with the repayments.
If you’re not sure whether consolidating your debt is a good idea, consider getting advice.
For example, you could speak to a financial counsellor through the National Debt Helpline for guidance and advice on your other options.
Bad credit debt consolidation FAQ
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Does applying for a bad credit debt consolidation loan affect my credit score?
In the short term, making new credit implications can cause a dip in your credit score.
But if you make the repayments on the loan over time and don’t take on any new debt or miss repayments elsewhere, your credit score should improve.
How long does it take to get approved for a bad credit debt consolidation loan?
To get approved, it can take 1-2 days as long as you're able to provide all the information that the lender requests.
Are bad credit debt consolidation loans cheaper than credit cards?
In most instances you should be able to find a debt consolidation loan with an interest rate that's lower than a typical credit card rate (the average credit card interest rate is around 17.74% p.a.).
But remember bad credit borrowers usually pay higher rates on loans.
Personal Loans guides and resources
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Written by
Loans Expert
Shaun McGowan
Reviewed by
Editor
Sean Callery
AS FEATURED IN
*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.
