- Bad credit can make a personal loan harder to get and more expensive, so it's worth comparing your options and avoiding unnecessary extra debt.
- Check your credit report with Equifax, Experian, or illion to understand where you stand and to spot and rectify any errors.
- Alternatives for borrowers with bad credit include secured loans, a personal loan with a guarantor, or a no-interest loan.
Your credit history and credit score are a representation of your trustworthiness as a borrower, so it plays a big role in determining whether you’ll be approved for a loan. Lenders look at your credit history to determine whether you could afford to meet potential repayments, how much they’re willing to lend to you, what interest rate to charge you, and whether you should be approved or rejected for a loan.
If you have bad credit, you may find it harder to be approved for a personal loan than someone with good credit, or you may have to pay a higher interest rate or higher fees. This is why it’s important to compare all your options and consider ways to improve your credit and manage your existing debts before taking on more debt.
How can I find out if I have bad credit?
Even if you’ve never had a credit card or a loan before, you may still have a credit report (for example, if a telco/utility default was recorded), or you may have a thin file with limited information. ”Behaviours like not paying bills on time, racking up huge amounts of debt, declaring bankruptcy, or being rejected for multiple credit applications can all negatively impact your credit score.
You can check your credit score for free through any of the major credit reporting bodies in Australia, like illion, Equifax or Experian. Personal finance apps nowadays also let you check your credit score for free.
‘Bad credit’ usually means ‘below average/low’ (or a history of defaults), but every lender has its own cut-offs.
Band | Equifax (0-1200) | Experian (0-1000) | Illion (0-1000) |
Excellent | 853-1200 | 800-1000 | 800-1000 |
Very good/Great | 735-852 | 700-799 | 700-799 |
Good | 661-734 | 625-699 | 500-699 |
Average/Fair | 460-660 | 550-624 | 300-499 |
Below average/weak | 0-459 | 0-549 | 1-299 |
Zero score | - | - | 0 |
Sources: Equifax, Experian, illion
These are correct at the time of writing and are subject to change. Ranges and labels can vary by provider and scoring model.
Personal loan options for people with bad credit
Having bad credit doesn’t mean you can’t apply for a personal loan. Here are some options you can consider.
Secured personal loans
A secured personal loan is a loan that is typically secured against the asset being financed by the loan you’re taking out. The lender uses this asset as collateral, which acts as protection in case you’re unable to repay the loan. If that were to happen, the lender would seize the asset and sell it to recoup the money you owe.
People with bad credit may have more luck getting approved for a secured personal loan because it requires them to put up an asset as security, which reduces some of the risk for the lender.
In the market for a personal loan? The table below features personal loans with some of the lowest interest rates on the market.
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Secured Type | Early Exit Fee | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.24% p.a. | 6.95% p.a. | $389 | Variable | Unsecured | $0 | $10 | $495 | $23,334 | |||||||||||
5.95% p.a. | 5.95% p.a. | $386 | Fixed | Unsecured | $0 | $0 | $0 | $23,171 | |||||||||||
5.76% p.a. | 5.76% p.a. | $384 | Fixed | Unsecured | $0 | $0 | $275 | $23,066 |
|
Guarantor personal loans
A guarantor personal loan is a standard personal loan application supported by a guarantor agreement. It is often backed by a close relative or a friend who has agreed to be responsible for the loan repayments if the borrower is unable to meet them.
The guarantor essentially acts as security for the loan, making the borrowing less risky for the lender.
Before taking out a guarantor loan, it’s essential to consider the responsibility the guarantor is assuming and the potential impact this could have on your relationship if you, the borrower, default on the loan.
No interest loans
The No Interest Loan Scheme (NILS) is an initiative of Good Shepherd Microfinance and the Federal Government. It allows people to access up to $2,000 for essential goods and services or $3,000 for a bond/rent in advance, council rates, or natural disaster recovery to be repaid up to 2 years with no interest or fees.
To be eligible, you must:
- Earn a pre-tax income less than $70,000 if single, or $100,000 if with a partner or children,
- Or have experienced family or domestic violence in the last 10 years,
- Or have a Health Care Card or a Pension Card,
- And show evidence that you can repay the loan
- Take note: No credit check is required for No Interest Loans (NILs), which can make them accessible if you have a low credit score, provided you meet the eligibility criteria.
Borrow from family or friends
If you’ve exhausted all your other options, you could ask to borrow money from your family or friends. However, you should be mindful of the risks this option could pose to your relationship if you can’t repay the loan, or if the person you borrowed money from decides they now need the money back straight away for whatever reason.
The National Debt Helpline recommends agreeing with them upfront on exactly how and when the money you have borrowed will be repaid to avoid getting into an argument down the track. Don’t make promises to repay amounts you can’t afford, and set up a repayment schedule to keep you accountable.
Even without paperwork, borrowing money can form a legally binding verbal agreement. However, verbal agreements can be harder to prove, so it’s smart to confirm key terms (i.e. amount, repayment dates, etc.) in writing.
Savings.com.au’s two cents
If you have bad credit and need a personal loan, there are options available. Just be mindful that it may not be wise to dig yourself further into debt, so seek out alternative options if you can.
Where possible, consider alternatives first (like negotiating a hardship arrangement, a payment plan, or a no-interest loan). You may also want to speak with a free financial counsellor through the National Debt Helpline for personalised support.
Is it possible to get a bad credit personal loan with guaranteed approval?
In Australia, it’s not actually possible to get guaranteed approval for a personal loan if you have bad credit or otherwise. Lenders have to comply with responsible lending obligations, which means they’re required to assess every application, including making reasonable inquiries about your income, expenses, and debts, to check the loan isn’t unsuitable under responsible lending rules.
Be wary of ads promising “guaranteed approval” or “no checks” as these are common red flags in banking and credit scams. Always verify the lender is properly licensed.
Guaranteed approval vs conditional pre-approval
- Conditional pre-approval is usually just an initial, eligibility-based check (often before full verification and assessment), whereas
- “Guaranteed approval” implies unconditional acceptance regardless of checks, which legitimate lenders generally can’t promise under responsible lending rules.
Things to consider before applying for a personal loan if you have bad credit
Don’t apply for too many loans at once
Every loan application is recorded on your credit report. Making lots of applications in a short period is a massive red flag and could further hurt your credit score. If you’ve applied for a personal loan, wait until you hear back from the lender to see if you’ve been approved or rejected.
If you’re declined, it’s usually best to wait around 3 months before applying again if nothing material has changed (income/expenses, debts, credit file). However, if the rejection is due to missing documents or errors on your credit report, you can reapply as soon as the issue is corrected, but ideally only after confirming the lender’s reason and adjusting the application.
Check your credit score
You can request your credit report from Australia’s three main credit reporting bodies: Equifax, Experian, and illion. You are entitled to a free report at least once every three months from each one, and it can be worth checking more than one because they may hold different information and calculate different scores.
Once you’ve seen what’s on your report, you’ll have a clearer idea of how lenders may view your application. Keep in mind your credit score is only one factor, alongside your income, expenses, and existing debts.
Use a personal loan calculator
Before applying for a personal loan, consider using a personal loan calculator to calculate whether or not you could afford the repayments. Doing this may help you avoid applying for a personal loan you can’t afford, which could improve your chances of being approved.
Be careful about payday loans
Payday loans allow you to borrow smaller amounts of money up to $2,000, typically repayable in 16 days to 12 months.
Payday loans can look like a quick, easy way to get cash. But while lenders can’t charge interest, they can charge hefty fees (often up to a 20% establishment fee plus a 4% monthly fee), which can quickly inflate the total cost and, for some borrowers, contribute to a debt spiral if they fall behind and need to borrow again.
Read Also: Personal loans vs payday loans
How to improve your credit score before you apply
You generally can’t “fix” a low credit score overnight, but you can improve it over time by building a consistent track record, such as:
- Paying your rent or mortgage on time
- Paying utility bills on time
- Paying your credit card on time each month (ideally in full or more than the minimum)
- Lowering your credit limit (where appropriate)
- Limiting how many credit applications you make
If you spot a mistake on your credit report (e.g. wrong default or duplicated listing), request a correction through the credit reporting body or the credit provider. If they’re satisfied the information is inaccurate, they should take reasonable steps to correct it – generally within about 30 days.
Finally, steer clear of companies that claim to ‘fix’ or ‘repair’ your credit score. All these companies do is fix any incorrect information that may be on your credit report. You don’t need to pay someone to correct genuine errors and be charged high fees for things you can do yourself for free.
Get help to manage your debt
Before taking on any more debt, consider speaking with a qualified professional.
- You can contact the National Debt Helpline on 1800 007 007 for free, independent and confidential financial counselling and practical help (including working out what you can afford and negotiating payment plans). Their phone lines are open on weekdays from 9:30 am to 4:30 pm, while their chat is available from 9:00 am to 8:00 pm.
- If you’re facing legal action or need legal advice, you may be able to get free help through a community legal centre (use the national “find a community legal centre” directory) or your state/territory Legal Aid service.
- You can also contact your bank or lender’s financial hardship team to ask about hardship assistance, such as a payment plan or changes to repayments.
- If you’re feeling overwhelmed or need urgent emotional support, Lifeline is available 24/7 on 13 11 14.