Bad Credit Loans

1. What Are Bad Credit Loans

Bad Credit Loans are designed for borrowers who have a history of running into trouble with their outstanding financial obligations, such as delayed payments, defaulting on a loan, or frequent long-term borrowing. Lenders that provide these loans often disregard the credit history of the borrower and instead focus on the borrower’s existing financial condition to evaluate affordability and eligibility for the requested loan amount.

2. Types Of Bad Credit Loans

Borrowers with a bad credit history have a limited number of loan options available. These usually include payday loans online, personal loans (secured, guarantor, unsecured).

Payday Loans

Payday loans are usually available for amounts under $2,000 and for a term not exceeding one year. Repayments are scheduled on the borrower’s payday to ensure the borrower has the funds to make repayments.

Unsecured Personal Loans

Unsecured personal loans are available to bad credit borrowers as well. Although unsecured personal loans can go as high as $5,000, borrowers with a bad credit rating might not get approved for such high amounts. Instead, the requested loan amount is evaluated on a case-by-case basis, and the loan amount is approved up to the limit deemed affordable by the lender considering the borrower’s unique financial circumstances.

Secured Personal Loans

A secured loan requires you to pledge an existing asset in your possession against the loan obligation. This could include your house, motor vehicle, or any other valuable item. This pledge safeguards the lender’s interest against the loan amount. In case you fail to repay the loan, the lender holds the right to absorb the pledged asset and conclude the loan. Usually, the pledged asset holds a higher value than the loan amount obtained against it.

Guarantor Personal Loans

Since bad credit borrowers are deemed to pose a higher risk to lenders compared to borrowers with a good credit history, lenders are willing to offer a loan if the borrower can bring someone with a good credit history to cosign the loan agreement. These are called guarantor loans. Under this agreement, if the borrower fails to honor the loan obligation, the guarantor is held responsible for making repayments until the loan is fully repaid.

Loans For Debt Consolidation

If you have multiple outstanding debt obligations at this time and need a loan to make repayments, then a debt consolidation loan might be a suitable option. Under this loan, all your other outstanding loan obligations are paid by the lender, and you are given a consolidated loan with a potentially lower interest rate.

3. How Much Does A Bad Credit Loan Cost?

Regardless of whichever loan option you choose, loans that are available to bad credit borrowers carry a very high interest rate, making them one of the most expensive forms of borrowing in the Australian credit market. According to regulatory authorities in Australia, borrowers should only opt for such expensive loans in cases of dire financial emergency, after having exhausted other sources of financing such as family and/or friends.

Under rules established by regulatory authorities, lenders providing bad credit loans may charge:

  1. For loans under $2,000 (under one year): a maximum 20% one-time establishment fee on the loan amount, and a 4% monthly fee on the principal loan amount
  2. For loans falling between $2,001-$5,000 in value (under two years): a maximum one-time establishment fee of $400, and a maximum 48% APR that includes all associated charges
  3. For loans exceeding $5,000 (under two years): all charges levied by the lender should not amount to more than 48% of the principal loan amount per year.

An unsecured loan is likely to be more expensive than a secured loan due to the higher risk involved.

4. Eligibility Criteria

To apply for a bad credit loan, you must meet the following eligibility criteria:

  1. Be older than 18 years of age
  2. Have a valid residential address in Australia
  3. Hold a permanent residency or citizenship status in Australia
  4. Earn a stable regular income in Australia. Some lenders might require that you earn more than $350 on a weekly basis, more than 50% of which should be coming from sources other than Centrelink

In addition to these criteria, your chosen lender might have some additional requirements that you must fulfill to qualify for a loan.

5. Examples of Bad Credit Loans

The following lenders are open to applications from borrowers with a bad credit history.

Lender

Loan Type

Max Loan Amount

Max Loan Term

Payout Time

Fortnightly Repayment On A $1,500 Loan

Sunshine Loans

Short Term Loan

$2,000

14 weeks

Around 30 minutes, provided conditions are met

$396

Nimble Loans

Short Term Loan

$2,000

9 months

Around 1 hour, provided conditions are met

$372

Fair Go Finance

Small Loan

$2,000

12 months

One working day, on average

$354

Nimble Loans

Medium Loan

$5,000

22 months

Around one hour, provided conditions are met

$262.75

Swoosh Finance

Secured Loan

$4581.80

24 months

One working day

$244

Fair Go Finance

Personal Loan

$10,000

36 months

One working day

$238.07

Jacaranda Finance

Medium Personal Loan

$4,600

24 months

Almost instant, provided conditions are met

$226.47

6. Advantages and Disadvantages

Advantages:

  • Quick Need Fulfillment

Bad credit loan providers have a fast application processing time, so they are able to disburse the loan amount within one working day. This means you gain quick access to funds that you need to pay for your outstanding bills and payments.

  • Easy Application Process

Most of the bad credit loan providers operate an online application process that requires only a few minutes of your time to complete. This convenience allows you to easily and quickly apply for a loan at any time.

  • Debt Consolidation

If you are faced with multiple outstanding loan payments at the same time, and are finding it tough to keep up with the increasing interest burden, then a debt consolidation loan can make your life much easier.

Disadvantages:

  • High Charges

Considering your bad credit history poses an increased risk to the lender, the applicable interest expense on your loan is going to be much higher compared to a normal personal loan.

  • Secured/Guarantor Loans Require Collateral/Guarantor

Since many bad credit loan providers require you to submit some form of collateral or bring a co-signer to guarantee your loan repayment, failure to make repayments can result in you losing your collateral or forcing the guarantor to make repayments on your behalf. Neither of these two scenarios is ideal for any borrower.

7. Factors To Consider Before Applying For A Bad Credit Loan

There are a few factors you must take into consideration before proceeding with your application for a bad credit loan.

Applicable Fees

Although most lenders will charge the maximum fee allowed according to the regulatory framework, there are some lenders that might charge a lower rate based upon your unique financial circumstances. For example, guarantor or secured loans might carry a lower interest expense compared to an unsecured bad credit loan. You must carefully evaluate all available options, and then choose the cheapest one.

Choosing A Lender

Verifying the repute of the lender is crucial before you sign a loan agreement, especially when you are signing up for a secured loan in which your personal assets are at risk. Although the lender you choose might be registered with the relevant authorities, they might still hold a bad reputation due to exploitative practices in the past. This might include charging hidden costs to borrowers, or approving large secured loans to borrowers that clearly don’t meet the affordability assessment for such a high loan amount. You must research the lender’s repute and verify that the lender has a good history, and also operates a responsive customer service that is willing to assist you.

Making Repayments

Before signing on the loan agreement, you must confirm that you can easily make the scheduled loan repayments on time. With payday loans, this is easy to do as each repayment falls on your payday. However, with other loan types, the repayment date might fall before your payday, causing you problems when it comes to making timely repayments.

Term Duration Of The Loan

Make sure the loan term is long enough that you are able to comfortably afford all loan repayments on time. However, the loan term shouldn’t be unnecessarily long as that would simply make the loan more expensive due to extra interest charges. You can also check if you are eligible for short term loans.

8. Application Process

Although each loan type will have a slightly different application process, almost all lenders in Australia operate an online application process. However, some lenders might also welcome applications in-branch, so you can choose whichever medium feels easier.

Make sure you have all the required information when filling out the application form. This includes:

  1. Personal information including full name, date of birth, residential status, residential address, and contact information
  2. ID or medicare information
  3. Financial information, including income/expense information, and bank statements for the past 90 days
  4. Employment information, including employer address, contact information
  5. Loan information, including required loan amount, loan term, and purpose of the loan

After gathering all of this information, it shouldn’t take you more than a few minutes to complete the loan application.

In case you are applying for a guarantor loan, the above-mentioned information might also be required for the guarantor co-signing the loan.

In case you are applying for a secured bad credit loan, details pertaining to the asset to be pledged as collateral might also be required in addition to this information.

9. FAQs

1. Do I have a bad credit score?

Although you are allocated a unique credit score based upon your credit behavior in the past, each lender has its own evaluation criteria to assess whether your credit score is good or bad. Some events in the past that might have had a negative impact on your credit score include filing for bankruptcy, defaulting on loan payments, making late payments, applying for multiple loans at the same time, or having a high outstanding balance on your credit cards.

2. How long does it take to get approved for a bad credit loan?

Depending on your chosen lender, it shouldn’t take you more than one working day to get a bad credit loan approved, although some lenders might take up to two working days in case you apply after business hours.

3. What happens if I default on a guarantor bad credit loan?

If you default on a guarantor bad credit loan, then the guarantor on your loan will have to make all due repayments on time to avoid defaulting on the loan on their part. If the guarantor also defaults on the loan, it may have a negative impact on their credit score as well.

4. How can I improve my credit score?

You can improve your credit score by making all payments on time and reducing/eliminating your overall debt burden. Once you exhibit good credit behavior over the course of six months to one year, it will ultimately reflect positively on your credit score.

5. What happens if I fail to repay a bad credit loan?

Failure to repay a bad credit loan will have a further negative impact on your credit score and might prevent you from applying for further bad credit loans in the future.