How to get a personal loan with bad credit

By   |   Updated 19 Jul 2021

How to get a personal loan for bad credit
  • Do you have a bad credit rating and have been struggling to get a loan?
  • Wondering what the risks of a bad credit personal loan are and what other options you have?
  • Bad credit loans can help you meet your financial needs, but all that glitters is not gold.

Bad credit personal loans are fixed-rate loans for borrowers with a low credit score. Some of these loans are not backed by collateral and are often repaid in weekly, fortnightly, or monthly instalments. Most loan terms vary between one and five years, and you can usually use the funds for any personal purposes, such as consolidating debt or covering large expenses.

If you have a bad credit score but own assets, you could increase the chances of getting your loan application approved by opting for a secured personal loan.

Secured bad credit personal loans work in the same way as all secured loans and often have lower interest rates compared to unsecured options.

What is bad credit?

What is considered “bad” is slightly different at each of Australia’s main credit reporting bureaus.

  • Equifax: Below average = 0 - 509
  • Experian: Below average = 0 - 549
  • illion: Zero = no credit score = 0; Low = 1 - 299

You can get your Experian credit score for free with Finty. Sign up here.


Every lender has its own set of criteria for loan approvals. Generally, you have very few chances of getting a loan if your score is below 300 unless you opt for a secure or guarantor personal loan.

That said, the only way to know whether or not you can borrow the funds you need is to apply for a loan. Here are the main things to consider.

  • Pre-approval. Some lenders will give you a pre-approved decision.
  • Loan requirements. Check the lender’s criteria thoroughly before applying. If they state that they want a good credit score, it’s quite likely your application will be rejected.
  • Applying for a loan can have a negative impact on your score. Applying for a loan will trigger a hard credit check. If your application is rejected, your score may drop and stay lower for some time.
  • Interest rate and affordability. Because most lenders use risk-based pricing, having a bad credit means higher interest rates.

Is there any guarantee of approval?

No. Regardless of your credit score, there is no guarantee of being approved when you apply for a loan. The lower your credit score, the lower the chances of approval.

Bad credit loans vs. payday loans

Payday loans are short-term, high-interest loans meant to be repaid with the borrower’s next paycheck. They often only require proof of income and a bank account.

Lenders can’t charge actual interest on payday loans, but they can charge a lot of fees that make them a very expensive way to borrow money.

For instance, most payday lenders charge an establishment fee of 20% of the amount borrowed as well as monthly service fees for loan terms longer than one month.

Unlike a payday loan, lenders will charge an interest rate for a bad credit loan. Rates vary around 5% - 20% p.a. with loan terms from 1 - 7 years. Overall, bad credit loans are cheaper and less risky than payday loans.

Alternative options

There are other options available if you need money and have bad credit. Here are some of the most popular alternatives.

No Interest Loans Scheme (NILS)

The government’s NILS offers people on low-income affordable access to credit up to $1,500 with repayments arranged over 12 to 18 months. As its name suggests, the loan is interest-free, and there are no hidden fees. You can use the money to purchase essential goods and services, including household items and repairs, furniture, medical and dental bills, educational expenses, car repairs, etc.

Secured loans

If you have bad credit but own assets, lenders may approve your application for a secured personal loan. Things you can use to secure the loan include cash held in a savings account, a car, or a property you own. Some lenders may also consider valuable items.

Guarantor loans

In a guarantor agreement, the guarantor becomes liable for the loan if you can’t pay it back. While you can apply with bad credit, the guarantor is generally required to have an excellent credit history.

Borrow from family or friends

If none of the options above is right for you, borrowing from family and friends could be an option. However, mixing finances with relationships can get complicated.


Is there an instant decision on applications?

Some lenders provide instant decisions on applications, although they may only be provisional. Check to find out more about their specific application process before applying if you would prefer a fast decision, e.g. to pay rent arrears or a rental bond.

Will I need collateral to get approved?

It depends on the type of loan you apply for. You will not need collateral if you apply for an unsecured loan. Read more about secured vs unsecured loans.

Some lenders accept applications from people on Centrelink benefits.

Can unemployed people with bad credit get a personal loan?

It is generally not possible to get a personal loan if you are unemployed, even if you have good credit.

Will I need a cosigner?

Not necessarily, but a guarantor personal loan can increase your chances of being approved if your credit history is not good.