If you have a below-average credit score, it can be challenging to secure a personal loan from traditional lenders, as they may view you as a high-risk borrower. However, it’s important to note that having bad credit does not necessarily mean that obtaining a loan is impossible. With the right strategies and approach, it is still possible to secure a personal loan in Australia. In this post, we will explore various options and strategies for obtaining a personal loan despite a bad credit score.
1. Review your credit report
Did you know that up to 70% of credit reports in Australia contain errors? Errors in your credit report could be affecting your credit score and costing you that loan. Equifax, Experian, and Illion are the three major credit reporting bodies operating in Australia. The credit reporting bodies offer you a free copy of your credit report every three months. You should take advantage of this offer and review your credit report periodically, reporting any incorrect information on your report to the credit reporting bodies for correction. It is possible that a default that belongs to someone else has been fraudulently or mistakenly entered under your name, which could be the reason for your bad credit score.
2. Improve your credit score
To improve your chances of getting loans, you need to take various steps to improve your credit score. For example, ensure you pay your electricity, gas and phone bills, credit card bills, and mortgage instalments timely, which will be recorded on your credit report as your positive credit behaviour. You should refrain from applying for too many loans in a short span of time as it can have a negative impact on your credit score. If you don’t fully use your credit card limit, you should contact your bank to lower its credit limit, which will help improve your credit score over time.
3. Contact specialised lenders
Most conventional lenders, such as large banks, do not extend loans to borrowers with bad credit. So, you can contact various non-bank lenders who specialise in giving out loans to consumers with below-average credit scores. These lenders have low loan qualification criteria and you might have a higher chance of having your loan application approved while dealing with them. However, because of your bad credit score, lenders usually charge higher interest rates and fees for the additional risk they take by giving you a loan. So, you must be ready to pay a higher interest rate after your loan is approved.
4. Find a co-signer
Another way to get loans with bad credit is to find a co-signor who can guarantee loan repayment and will be legally responsible for repaying the loan in case you are unable to repay. So, if you have bad credit but your guarantor or co-signor has a good credit score, lenders will be much more confident in extending you the loan. Your co-signer should have full-time employment, have a regular income stream, and must be financially strong so that they can repay your debt in case you default on your loan repayment.
5. Consider secured personal loans
If you are struggling to get a personal loan due to your bad credit, you should consider getting secured personal loans. To get a secured personal loan, you need to put up collateral such as your car or property, which the lender can seize if you fail to repay the loan. Lenders are much more accommodating if you provide them with collateral as they can sell it to recover the loan amount.
What types of personal loans can you get with bad credit?
There are plenty of other options available for you even if you are denied personal loans by most lenders. Here are some alternatives to personal loans that you can consider:
1. Credit Union loans
Credit unions are not-for-profit organisations that offer a range of loans, such as car loans, personal loans, and home loans to their members. Because credit unions are non-commercial organisations, the interest rates on the loans charged by credit unions are usually lower than those charged by the banks. However, every credit union has different rates, so you need to confirm with them about the interest rate and fees before signing up for a loan.
To apply for a loan, you need to be a member of the credit union for which you need to pay a membership fee and a nominal deposit. Most credit unions require bad credit customers to get a guarantor having good credit for getting a loan.
2. Payday loans
Payday loans are short-term, small-amount loans that you can take to fulfill your immediate cash requirements. Most payday lender companies can easily extend payday loans to customers with bad credit scores as they base their loan approval decision on your current ability to repay the debt. However, payday loans are extremely expensive and have high-interest rates and fees.
3. Peer-to-peer lending
Peer-to-peer (P2P) lending platforms connect individual lenders with individual borrowers. P2P lending platforms divide loan applicants based on their credit ratings. The lenders on the platform check their credit reports and check their pay slips, bank statements, and other documents, and offer them their loan terms. However, with bad credit, you should expect to pay high-interest rates and high fees if you succeed in getting a loan from any P2P lending platform.
4. Government-backed loan schemes
You can also consider some government-backed loan schemes, such as No Interest Loan Schemes (NILS) and Low-Interest Loan Schemes (LILS), to get personal loans with a bad credit score. As their names suggest, these loans are small-amount loans with zero to low-interest rates and are offered to individuals with low incomes for buying essential items. Individuals with bad credit or no credit history can also get these loans provided they present sufficient documentation to prove their ability to repay the loan.
Getting personal loans with bad credit is difficult, but not impossible. You can use plenty of strategies to get a personal loan in spite of your bad credit score. You can contact lenders who specialise in dealing with consumers with bad credit. If you need smaller loans, there are plenty of alternatives to personal loans that you can easily get even with your bad credit rating.