The Ins and Outs of Getting Personal Loans With Bad Credit

7 Ways to Pay Off Credit Card Debt Faster

If you have bad credit and need a personal loan, then you may be exploring your options.

Even if you do have a bad credit score, it is still possible for a lender to approve you for a personal loan. However, you may be subject to strict borrowing terms. For example, you usually pay higher interest rates and fees.

Read on to find out the ins and outs of personal loans for bad credit, and then see what you can do to improve your credit score.

Key takeaways


  • A bad credit score could impact your ability to get approval for a loan by a bank or lender.
  • A history of late or missed debt repayments, multiple loan applications, and bankruptcy can negatively impact your credit score.
  • By improving your credit score before you apply for a personal loan, you can increase your odds of being approved and securing a better deal.


What is a Bad Credit Personal Loan?

A bad credit personal loan is a type of loan tailored to people with bad credit. They function like a standard personal loan, where the borrower will receive a lump sum payment and gradually pay it back (plus interest and fees) in weekly, fortnightly, or monthly instalments.

Most major banks and lenders refuse to offer bad credit personal loans, as they perceive the risk as too high. For this reason, borrowers must approach smaller lenders who specialise in working with people who have bad credit and need a personal loan. While this may sound great on paper, there are drawbacks to approaching these lenders. Namely, you can expect to pay higher interest rates and fees and be limited in how much you can borrow.


How Does Having Bad Credit Impact Your Ability to Get a Personal Loan?

Your credit score is a numerical figure between zero and 1,000 or 1,200. It represents the state of your financial history. The higher your credit score, the better your financial history. When you apply for a personal loan, banks and lenders use your credit score to determine your ability to repay a set loan amount.

Here are just some of the ways that bad credit can impact your ability to get a personal loan:

Low Credit Score

Since your credit score is tied directly to your ability to repay a personal loan, you are less likely to be approved if your credit score is low. Events that may lower your credit score include:

  • Missing credit card and loan repayments
  • Late bill payments (rent, mortgage, utilities)
  • Too many loan applications (including credit cards)
  • Bankruptcy


As well as evaluating your credit score, banks and lenders will also consider your income, length of employment and permanent address, borrowing amount, and other contributing factors. Typically, a bank or lender will not approve you if you are under a Part IX debt agreement.

High Interest Rates and Fees
Most lenders use risk-based pricing to calculate bad credit personal loan interest rates. While there are many factors that influence this figure, you can expect to pay anywhere from 10 to 25% or higher, according to Finder. Some lenders charge a $200 account establishment fee as well.

If you are already under financial pressure, then higher interest rates could make it harder to afford personal loan repayments.


Strict Eligibility
When you apply for a bad credit personal loan, you are usually subject to stricter eligibility requirements than a standard personal loan.

For example, instead of providing just three months of documentation (payslips, utility bills), a lender may require you to submit at least six months of documents. You may also need to be at the same permanent address for at least six months compared to just three months.

Depending on your circumstances, these eligibility requirements may limit your borrowing options or make it harder to repay your loan. You may need to wait until your situation improves before you apply.

Read more: How to Improve Your Credit Score Before Applying for Debt Consolidation


How to Improve Your Credit Score and Stay on Top of Your Payments

As of late 2023, around 17% of Australians owe money on a personal loan, according to NAB. Thus, you should apply for a loan only when you are ready and able to repay what you owe. Or else you risk sinking further into debt.

Here are a few ways to improve your credit score and stay on top of your debt repayments:

Fix Credit Report Errors
Every three months, you can request a free credit report from one of the three credit reporting agencies, including Experian, illion, and Equifax.

When you do get a credit report, review it. Check that all of the loans and debts on the list are yours and that your birth name and date of birth are correct. If any information is incorrect or out of date, notify the credit reporting agency so they can fix it. This service is free of charge.

Avoid companies that claim they can wipe negative information from your credit report. The most they can do is ask a credit reporting agency to remove incorrect or out-of-date information, which you can do for free. Scam companies can charge up to $1,000 for things you can do yourself.

Pay Off Existing Debts, Pay Bills on Time
Continue to pay off your existing debts. Whether they be credit cards, personal loans, or home loans, a consistent repayment history will show lenders that you have what it takes to repay a new loan.

Before applying, you may not need to repay your existing debts in full. A few months of regular payments may convince a lender to approve you unless you are under a Part IX debt agreement.

Furthermore, ensure you pay your bills on time. If you are over 60 days overdue on a bill, a default may appear on your credit report. Defaults can stay on your credit report for five years or more.

Avoid Too Many Loan Applications
Every time you apply for a loan, the lender will review your credit report and credit score. Regardless of the outcome, this activity will appear on your credit report. Therefore, too many loan applications may signal financial distress to a lender, reducing your odds of approval.

For this reason, don’t apply for a bad credit personal loan (or any loan, for that matter) unless you are confident and ready to commit.


Chat with a Debt Specialist

Are you over 15k in debt and struggling to make ends meet? At Debt Fix, we offer a range of debt solutions to help you save money, stop the creditors from calling, and put you back in control of your finances.

Get started with a free, no-obligation chat. Making an application won’t affect your credit rating.


Frequently Asked Questions (FAQs)

Can I Get a Bad Credit Personal Loan If I’m Receiving Centrelink Payments?
Yes. However, you’ll need to prove that you can afford to repay what you owe, which means showing your expenses and proof of income, including any Centrelink payments.

Can Self-Employed People Get a Bad Credit Personal Loan?
Yes. However, instead of supplying pay slips, you’ll need to provide alternative documentation. A common request for self-employed people is at least two years’ worth of tax returns.

How Can I Reduce the Interest Rate on My Bad Credit Personal Loan?
Compare lenders and shop around until you find the best deal. You could also consider a secured bad credit personal loan, where you secure the loan with an asset (usually a car). If you fail to meet your debt repayment obligations, the lender can sell the asset to pay off what you owe.