If you have a bad credit score, major banks and lenders may see you as high risk and reject your loan application. But you can still get a bad credit loan from smaller lenders, as a personal loan of up to $5000. It can be given to people with a bad credit history due to missed/late payments or bankruptcy.
Generally, to be eligible to apply for a bad credit loan, you need to be 18 years or older, be a permanent Australian resident, and have a regular income. Repayment terms are flexible to suit your personal circumstances (3-12 months) and it’s also the first step in rebuilding your credit score.
Here’s how you can get a loan with bad credit:
- Secured vs. unsecured loans – Secured loans have a car or property as collateral with tax-deductible interest. Unsecured loans have no collateral, high interest rates and low loan limits.
- Payday loans and cash advances – These have short-term low loan limits with fees and high interest rates.
- Rates, fees and limits – Bad credit loans come with high interest rates, expensive fees and low loan limits.
Choosing a loan
- Home equity line of credit – You can use your property’s equity to get a tax-deductible and low interest-rate line of credit that you can spend as you wish, no matter what your credit score is. However, not paying back the debt can put your property at risk.
- Credit union – A credit union is a non-profit organisation that’s owned by its members. Contact your local credit union for obtaining a personal loan. But make sure to compare loans from different credit unions and choose the one with the lowest interest rate and fees.
- Peer-to-peer lending – This is an online platform where you can borrow money from an individual with low interest rates. You can post a loan listing including the desired amount and why you want it, which will be screened and your credit score checked by peer-to-peer lenders. If you meet a lender’s criteria, they will consider your loan application.
- Loan from family or friends – Your family or friends may loan you some money. Draw up a written agreement including the interest rate, terms of payment, any collateral, and the consequences of failing to repay the debt.
- Co-signing – Someone with good credit can co-sign a loan with you. However, the creditor will require your co-signer to make a full payment on a debt you can’t repay. Both your credit reports will have the payments recorded in them, so it’s best not to default or make late payments.
Meeting with a lender
- Presenting your case – Have all the relevant documents and information, including a loan application and/or letter, employment and housing history, bank statements, income tax returns, and outstanding loans and credit card debt.
- Applying more than once – Apply to at least 12 lenders in your local area and if you get rejected, get feedback to improve your next application.
Rebuilding your credit
If none of the lending options above work for you, you can get a traditional loan by raising your credit score. Check your credit report and fix errors that could be hurting your credit score, and don’t always rely on loans and credit cards to get by. Overall, being a smart borrower and rebuilding your credit will help you get a loan and be in control of your finances.
- Secured credit card – This will help rebuild your credit by establishing a history of consistent repayments.
- On-time payments – Pay bills by the due date, as 35% of your credit score is made up of your payment history.
- Credit counsellor – Choose a licensed counsellor to help with getting a debt consolidation loan, eliminating your debt and improving your financial security.