How to Get a Loan with Bad Credit

how to get a loan with bad credit

Many Australians are affected by bad credit every year. Bad credit can result from many different things, such as missed payments on bills, defaulting on loans, or declaring bankruptcy.

Whatever the reason, bad credit can make it very difficult to get a loan from a traditional lender. This is because they view people with bad credit as high-risk borrowers and may be unwilling or unable to offer the money you need.

The good news is that there are still options available for those with bad credit to get a loan. Below we discuss the types of bad credit loans, where to get them, how you can improve your chances of being approved, and what the requirements are to qualify.

Can I borrow money if I have bad credit?

Yes. This is where bad credit loans come in. Bad credit loans are designed specifically for people with bad credit and offer a way for you to get the money you need, even if other lenders have turned you down.

But note that lenders that offer loans to borrowers with bad credit may charge a higher origination fee and interest rate, resulting in a higher annual percentage rate (APR). Also, these lenders may require a higher down payment or collateral or lower the maximum loanable amount.

It is important to remember that bad credit loan interest rates and fees vary from lender to lender, so shopping around for the best deal is vital. Additionally, be sure to read all of the terms and conditions before signing any agreement.

Types of loans available with bad credit

Short-term cash loans

This type of loan, also called a payday loan, is a good option for a quick influx of cash. These loans are typically for amounts up to about $5,000.

The advantage is you won’t need to pass a credit check to qualify. Instead, most lenders will ask to see your most recent paycheque to verify your income.

It is important to note that payday loans tend to have incredibly high interest rates.

The assumption is that you will repay the loan once you get paid. Therefore, you should get the loan paid off quickly to minimise your interest costs.

Bad Credit Loans and Specialty Loans

Some lenders focus specifically on those with bad credit. These lenders usually understand that people can end up with bad credit for different reasons and that you can still be a responsible borrower, even if you have a couple of mistakes in your credit history.

With these lenders, the qualification criteria tend to be more flexible than what you’d find at traditional financial institutions. Lenders will look at your full credit picture, including your income and other financial obligations.

Interest rates on bad credit and specialty loans are often higher than the norm, so it is in your best interest to repay the loan as soon as possible.

Debt Consolidation Loans

A debt consolidation loan may not reduce your total debt but can shrink your monthly payments and help you save on interest. This type of loan pays off all of your existing debts, combining them into a single, new loan.

You’ll then have just one monthly payment instead of several, and you may qualify for a lower interest rate than what you were previously paying.

If you stay on top of your repayments for the new loan, you’ll see an improvement in your credit rating over time, making it easier to qualify for future loans.

Secured Personal Loans

In the secured personal loan structure, you can use your car, home or another big-ticket item as collateral for the debt.

If you fail to repay the loan, the lender can claim your collateral as payment.

This is fine as long as you can afford your monthly repayments, but you’ll want to be sure that you can manage your repayments and eventually repay the loan.

Guarantor Personal Loans

This is a prevalent option among younger borrowers. With this type of loan, someone else will sign on as a guarantor, often a parent, grandparent or close friend.

If you cannot make your repayments, your guarantor will be responsible for making the repayments on your behalf.

Credit Card Loans

If you have an existing credit card, some banks will allow you to take out a loan against it. This can be an attractive option because the interest rates are usually lower than other bad credit loans, but they come with some risk. While the interest rate is relatively lower, you must pay back the full amount in a month; otherwise, you will incur a penalty fee for any unpaid amount.

What is the easiest loan to get approved for?

While it can depend on your specific circumstances, a short-term cash loan tends to be the easiest to get approved for. These loans typically don’t require a credit check and are available for relatively small amounts. The interest rates are usually higher than other loan options, so it’s essential to be sure you can repay the loan in full and on time.

How can I improve my chances of getting a bad credit loan?

You can take several steps to increase your chances of being approved for a bad credit loan. Firstly, it’s important to ensure that all the information on your credit report is accurate. This includes checking for any errors or discrepancies and disputing them if necessary.

Additionally, you should pay off as many existing debts as possible before applying for a loan. Making timely payments on your current loans can help improve your credit score, making it easier to get approved for a loan with bad credit.

You should do plenty of research into potential lenders and loan types before applying. Take note of the qualification requirements to ensure you meet them. Avoid applying for loans that you think might be a stretch, as multiple applications can damage your credit history.

It may seem that you’re stuck in the financial hole of bad credit, but it will get easier.

Where to get a loan with bad credit

Family and friends

Sometimes, those closest to you are your best sources of funds.

However, it’s important to treat any loan from someone you know just as if it were a formal business transaction with documentation.

Not repaying a loan to a relative or friend could wreak more havoc than having a bad credit report. It can cause irreparable harm to the trust between the two parties, resulting in feelings of betrayal and resentment.

This can be especially damaging if you didn’t borrow the money for a specific purpose or if both parties didn’t clearly communicate the repayment terms. Additionally, not repaying the loan could lead to legal action being taken against you if the other party chooses to pursue it. This could further damage your credit score and reputation, and you could face serious financial consequences.

Peer-to-peer lending

This is a relatively new form of lending on an online platform that allows you to borrow directly from another individual rather than an institution.

While your credit score is still a factor, P2P lenders may be more lenient than traditional lenders but may offer higher interest rates.

Credit unions

Credit unions are similar to commercial banks, with the difference that they are owned by their members rather than by profit-seeking shareholders.

They may be willing to look beyond a poor credit history to approve an application.

Banks that don’t use credit scoring

While most lenders use the computer-based credit scoring system to assess your lending eligibility, some don’t.

This means that a human will evaluate your personal situation to decide whether to make the loan.

Specialist non-conforming lenders

More flexible than the major banks, these specialist lenders also make a case-by-case assessment in determining borrowing eligibility.

While loan applications will be approved in most instances, your credit score comes into play: the higher the risk of your loan, the higher the interest rate.

These loans, particularly, are good as an interim measure until your credit score improves.

Debt consolidation companies

Debt consolidation companies work with individuals looking to improve their financial situation daily.

If you want a loan to get out of debt, find a debt consolidation company that can show you debt consolidation loan options — these will vary depending on your circumstances.

What are the requirements to get a bad credit loan?

The requirements for getting a bad credit loan will vary depending on the lender. Still, they generally require that you be an Australian citizen or permanent resident and have a stable source of income. Additionally, you may need to provide proof of identity, address, and evidence that you can repay the loan.

Bad credit loans are an excellent option for those turned down by traditional lenders due to bad credit. With these loans, you can get the funds you need without worrying about being turned down due to your credit score.

However, it’s essential to remember that bad credit loans typically come with higher interest rates and fees than traditional loans. Hence, it’s necessary to do your research before committing to one. Nevertheless, with careful planning and budgeting, bad credit loans can be a great way for you to get the funds they need despite the bad credit.

If you don’t know where to start, we can help. Get in touch with us.


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