A Comprehensive Guide to Bad Credit Personal Loans

If you have a bad credit rating and want to apply for a personal loan, then you may have questions. Can I get a personal loan on bad credit? If so, where? What are the risks? What are the potential outcomes?

To help you answer these questions, this article will cover all you need to know about bad credit personal loans. You will also learn how Debt Fix’s debt consolidation services can help.

Key takeaways


  • Bad credit personal loans function the same as standard personal loans, but with stricter terms and conditions.
  • High interest rates and fees, low borrowing amounts, and relaxed approval process are common with bad credit personal loans.
  • Know what you are getting into before agreeing to a bad credit personal loan, and be wary of scam offers with “guaranteed approvals.”


What is a Bad Credit Personal Loan?

A bad credit personal loan is a type of loan for people with bad credit.

It is a financial agreement between a lender and a customer, where the lender agrees to provide the customer with a short-term loan. The customer then gradually repays the loan (plus interest and / or fees) on a weekly, fortnightly, or monthly basis.

Like a standard personal loan, you can use the money from a bad credit personal loan to buy all sorts of things – a new car, a new appliance, a house renovation, and more.

You may be required “secure” your loan with an asset. For example, it’s not uncommon for a lender to insist you provide your car as collateral. This means, if you fall behind on your debt repayments, then your lender may repossess and sell your asset, using the money from the sale to pay off the remaining debt.  


What is Different About Bad Credit Personal Loans?

Bad credit personal loans typically have higher interest rates and fees, lower borrowing amounts, and relaxed approval process than standard personal loans.


Why such high interest? Because, through the eyes of lenders, customers with bad credit are at a higher risk of defaulting on their debt repayments.

Let’s explore these differences in greater detail.

High Interest Rates and Fees
To offset the risk of bad credit personal loans, lenders charge high interest rates and fees. While interest rates and fees vary between lenders, here are some ballpark figures.

With a standard unsecured personal loan, you can expect to pay between 6.99% to 20.49% per annum, according to NAB. But with an unsecured bad credit personal loan, you can expect to pay between 15% to 25% or more per annum.

In terms of fees, you can expect to pay an account setup fee, which is a one-time payment once the loan is established. Ongoing fees may include exit fees, late payment fees, and monthly account maintenance fees.

Low Borrowing Amounts
With a bad credit personal loan, you have less borrowing power than you would with a standard personal loan. This means you cannot borrow as much money.

Just like interest rates and fees, borrowing amounts vary between lenders. With a standard personal loan, you may be able to borrow up to $100,000. But with a bad credit personal loan, you may only be able to borrow $30,000.


Approval Process
When you apply for bad credit personal loans, you must first prove that you can repay what you wish to borrow.

To do this, you may have to provide lenders with documentation. The purpose of this documentation is to give lenders an overview of your financial history and circumstances. They will also review your credit rating and credit report.

The documentation you provide should be tell lenders:

  • Your income and expenses
  • How long you have been employed at your current job
  • How long you have been at your current address
  • Details of Your assets which can be used as collateral
  • Your borrowing amount
  • The purpose of the loan
  • Number of dependants


Generally speaking, lenders will review your application more favourably if you have been at the same job and address for at least six months.


What is Considered a Bad Credit Rating?

That depends on the criteria set by the credit reporting body. The three main credit reporting bodies in Australia are:

  • Equifax
  • Experian, and
  • Illion


As a rule of thumb, a bad credit rating is anything below average (0-459), according to Equifax. However, some lenders may classify anything below 660 as a bad credit rating.

What matters most to lenders is why you have bad credit, and the steps you are taking to improve it.

What Do Lenders Consider When Reviewing Your Application?

Aside from the above documentation, some lenders may also consider the circumstances surrounding your credit rating.

Two people can have the same credit rating. But they can be in very different financial situations.

Let’s say you have a recent history of missed debt repayments. To lenders, you may be considered a high risk applicant. So, they may reject you or charge a high interest rate. But what if you have a recent history of timely debt repayments? Even some savings? Then lenders may approve you.

By showing lenders you are on the right path, your odds of approval go up.


Where Can You Apply for a Bad Credit Personal Loan?

Most major banks and lenders don’t offer bad credit personal loans, as the risk is too high for them.

There are many other lenders that specialise in bad credit personal loans. Usually these lenders operate online and may not be regulated, so extreme caution is required. 


Bad Credit Loan Alternatives
If you need to consolidate your debts but you wish to avoid paying excessive interest which may ultimately make worse an already bad situation, and you don’t qualify for regular loan with a bank you may consider speaking to a Debt Management Specialist.


Whilst a Debt consolidation loan will simplify your debt by combining multiple debts into one repayment, it may not be the best or most appropriate solution in the circumstances. Even though a debt consolidation loan will mean you only have to pay one debt amount, instead of juggling multiple debts with different lenders, for a debt consolidation loan to be effective the repayments must be significantly lower than your current debt obligations. 


Best Practices to Follow

By now, you should know what a bad credit personal loan is and how it works. This said, before you apply for a bad credit personal loan, please consider the following: 

Don’t Apply Too Many Times
Every time you apply for a loan, the activity appears on your credit report. This applies whether or not your application is successful. Therefore, too many applications may signal to lenders that you are under financial distress and may reject your application.

Watch Out for Scams
Avoid lenders and brokers that offer bad credit personal loans with guaranteed approvals. Chances are the offer is a scam.


Companies that offer bad credit personal loans are required to carry. Under this license,lenders have obligation to ensure that they act in your best interest.

Correct Credit Report Errors
Before a lender checks your credit report, you can do it yourself without impacting your credit rating.

Request a credit report from any of the three main credit reporting bodies: Equifax, Experian, and iIllion. Confirm that the details of your credit report are up to date and accurate.


If you discover any discrepancies, such as false or inaccurate data, notify the credit reporting agency. This may help improve your credit score


Seek Debt Consolidation Through Debt Fix

Do you have over 15K of debt? Debt Fix can help lower your repayments so you can get on with life.

At Debt Fix, we offer a range of debt solutions to help you save money, get creditors off your back, and put you in control again.

Get started today. It only takes 30 seconds to apply. And making an application won’t affect your credit rating.


Frequently Asked Questions (FAQ)

What is the Difference Between a Secured and Unsecured Bad Credit Personal Loan?
A secured bad credit personal loan ties a nominated asset to the loan. If you fail to repay the loan, then the lender can repossess and sell that asset to pay off the remaining debt.

An unsecured bad credit personal loan does not tie a nominated asset to the loan.

Can a Self-Employed Person Get a Bad Credit Personal Loan?
Yes. But you may need to provide alternate documentation in lieu of payslips. For example, a year or more’s worth of tax returns.