How to get a loan with bad credit in Australia
Having bad credit can make the idea of getting a loan feel out of reach, but it doesn’t mean you’re out of luck. If you’ve faced a few financial setbacks or simply want to understand your options, this guide will walk you through the next steps you can take towards securing a loan.
We’ll look at what bad credit means, the different types of loans available, and how to approach applying for one. You’ll also find our expert tips for improving your chances, alternative ways to borrow, and an overview of how mortgage brokers (like TMA) can support people with bad credit.
What is bad credit?
‘Bad credit’ means your credit score is lower than average, usually because of things like missed repayments, defaults, or past financial difficulties.
In Australia, credit reporting agencies give everyone a score based on their borrowing and repayment history. A lower score tells lenders that you may be a higher risk, which can traditionally make it harder to get approved for a loan.
At TMA, we understand that bad credit doesn’t define who you are or what’s possible for your financial future. If you’d like to discuss your options, contact us. We’re here to help.
“Bad credit isn’t the end of your borrowing journey. Lenders will often weigh your current circumstances more heavily than past mistakes.” – Tony Xia, Director, The Mortgage Agency
How does bad credit history affect loan applications?
When you apply for a loan with bad credit, lenders consider your credit history when assessing your loan application. Traditional lenders may view a low credit score as a red flag, suggesting a higher likelihood of defaulting on loan repayments. This makes obtaining loans from these institutions difficult for individuals with bad credit.
However, non-bank lenders specialising in bad credit loans have a different approach. They consider factors beyond your credit score, such as your current financial situation, income, and expenses. These lenders aim to provide opportunities for borrowers with bad credit to access the funds they need.
The impact of bad credit on interest rates
One significant impact of bad credit is the higher interest rates associated with bad credit loans. Lenders consider borrowers with bad credit to be a higher risk; to compensate for this risk, they charge higher interest rates.
The interest rates on bad credit loans are typically higher than those offered to individuals with good credit.
So, carefully consider the interest rates and fees associated with bad credit loans before committing to any loan agreement. We can help you assess whether the loan terms are manageable for your financial situation.
What’s considered a good credit score (and how to check yours)
In Australia, scores usually range from 0 to 1,000 (sometimes 1,200, depending on the agency). According to Canstar, a score between 661 and 734 is considered ‘good’, 735 to 852 is ‘very good’, and anything above 853 is ‘excellent’.
You can check your credit score for free through Equifax, Illion, or Experian, the three main credit reporting agencies in Australia. Each one might hold slightly different information, so it’s worth checking more than one before applying for a loan.
Keep an eye on your score once or twice a year to make sure there aren’t any errors. If your score isn’t where you’d like it to be, that’s okay – with the right guidance and consistent repayments, you can definitely improve it.
The types of bad credit loans in Australia
There are various types of bad credit loans available in Australia. Understanding the different options can help you choose the most suitable loan for your needs.
Personal loan options
Personal loans can help you manage short-term costs, cover emergencies, or consolidate debt. Even with bad credit, there are several types of loans worth exploring, each with its own pros and cons.
Secured personal loans
Secured personal loans require borrowers to provide collateral, like a car or other valuable asset, as security against the loan. This collateral reduces the risk for the lender, making it easier for individuals with bad credit to obtain these loans.
Secured personal loans generally have lower interest rates and higher borrowing limits than unsecured loans.
Unsecured personal loans
Unsecured personal loans do not require collateral. As such, they are riskier for lenders, as they rely solely on the borrower’s creditworthiness.
Consequently, unsecured personal loans for individuals with bad credit often come with higher interest rates and lower borrowing limits. However, they provide an option for those who do not have assets to use as collateral.
Payday loans
Payday loans are short-term loans designed to provide immediate cash until the borrower’s next paycheck.
These loans are accessible even for individuals with bad credit, but they come with high fees and interest rates. Ensure you carefully consider the terms and conditions of payday loans, as they can lead to a cycle of debt if not managed responsibly.
Guarantor loans
Guarantor loans involve a third party, usually a family member or friend, who guarantees the loan repayments if the borrower defaults. Having a guarantor can increase your chances of loan approval, as it provides additional security for the lender. However, you must choose a guarantor who understands the responsibilities and is willing to take on that role.
It’s important to note that these loans may not be available to clients who have a bad repayment history or a low credit score.
Borrowing from family or friends
Another option for obtaining a loan with bad credit is to borrow money from family or friends. This option may offer more flexibility and lenient repayment terms. However, approach these arrangements with caution to avoid straining personal relationships. Clear communication and a written agreement can ensure transparency and prevent misunderstandings.
Home loan options
Bad credit doesn’t have to stop you from securing a loan – or owning a home. There are several specialist and alternative loan types that may still be available, depending on your situation.
Specialist lender home loans
These loans are offered by non-bank lenders who look beyond your credit score to assess your full financial picture. They’re ideal if you’ve had past defaults or a low score, but have a stable income and repayment ability.
First-home buyer programs
Government-backed schemes like the Home Guarantee Scheme can help you enter the market with a smaller deposit and no lender’s mortgage insurance (LMI).
Debt consolidation home loans
This option lets you roll multiple debts into your home loan to simplify repayments. It can make budgeting easier, although extending your loan term may increase the total interest you pay.
Low-doc or alt-doc home loans
Low-doc loans are good for self-employed borrowers who don’t have complete financial documentation. These loans offer flexibility but may come with higher rates and fewer lender options.
Guarantor home loans
A family member can use their property or equity to help you secure your home loan. It’s a great way to buy sooner, but it does place significant responsibility on your guarantor if repayments are missed.
To explore all your home loan options, read our article on bad credit home loans.
How to apply for a bad credit loan
Applying for a bad credit loan requires careful consideration and preparation. Here are some steps to follow when applying for a loan with bad credit:
Step 1: Assess your credit score
Before applying for a personal or home loan, assess your credit score. Several credit reporting agencies in Australia offer free credit score checks. Understanding your credit score will give you an idea of your creditworthiness and help you determine the type of loan you are eligible for.
Step 2: Gather the necessary documents
When applying for a bad credit loan, you must provide certain documents to support your application. These documents typically include proof of identity, bank statements, proof of income, and any other relevant financial documents. Gathering these documents in advance will streamline the application process.
If you’re applying for a home loan, you’ll also need to show proof of your deposit, recent payslips, savings history, and details of the property you’re buying.
Step 3: Choose the right loan
Choose the loan that best suits your needs. There are various types of bad credit cash loans available. Consider interest rates, fees, repayment terms, and borrowing limits. Compare different lenders and loan products to find the most suitable option for your financial situation.
Step 4: Contact lenders
Once you have identified potential lenders, contact them to discuss your situation and loan requirements. This initial conversation can help you gauge the lender’s willingness to work with individuals with bad credit and allow you to ask any questions about the loan process.
Alternatively, you can work with a mortgage agency. We have specialised knowledge of the lending market and access to a wide network of banks and non-bank lenders, including some you may not be able to find on your own.
Step 5: Apply for the loan
After conducting thorough research and consulting with lenders, it’s time to submit your loan application. Ensure that you complete the application accurately and provide all required documents. Be prepared for a potential credit check as part of the application process. Remember to review the loan terms and conditions carefully before accepting any offer.
Risks and considerations
Before applying for a bad credit loan, it’s important to understand the risks involved. While these loans can help you move forward financially, they often come with higher costs and stricter terms.
Here are some of the things you should be aware of:
Higher interest rates
Bad credit loans usually come with higher interest rates because lenders see them as higher risk. In Australia, unsecured personal loans typically range from around 7% to 21% p.a., depending on your credit history and lender. For specialist home loans, rates can start from about 5.79% up to 11.49%, depending on factors like your deposit size, repayment history, and the lender’s criteria.
Even a small difference in your rate can make a big difference to your monthly costs. For example, on a $500,000 mortgage, a 1% increase in interest adds roughly $400 a month to repayments.
Impact on credit score
Applying for multiple loans in a short time can lower your credit score, as each application shows up on your credit report. It’s best to research and compare lenders first, applying only when you’re confident you meet their criteria.
Once you get a loan, making consistent repayments on time can help improve your score in the long term.
Loan scams and fraudulent practices
Unfortunately, people with bad credit are often targeted by loan scams. Be cautious of any lender promising ‘guaranteed approval’ or asking for upfront fees.
Always check that the lender is licensed with the Australian Securities and Investments Commission (ASIC) and read all terms carefully before signing anything. Working with a verified mortgage broker can also help you avoid risky or unregulated lenders.
Alternative options
While bad credit loans can provide a solution for individuals with poor credit, it’s worth exploring alternative options that may help improve your financial situation. Here are some alternatives to consider:
Improving your credit score
Working on improving your bad credit score can open up more borrowing opportunities in the future. Some steps to improve your credit score include making timely repayments, reducing credit card balances, and avoiding new credit applications unless necessary.
Over time, as your credit rating improves, you may qualify for loans with better terms and lower interest rates.
Debt management strategies
If you are struggling with existing debts, implementing debt management strategies can help you regain control of your finances.
These strategies may include creating a budget, negotiating with creditors for lower interest rates or repayment plans, and seeking financial counselling. Taking proactive steps to manage your debts can improve your financial situation and increase your chances of obtaining favourable loan terms in the future.
Seeking financial counselling
Financial counselling services are available to provide guidance and support to individuals facing financial difficulties.
Free financial counselling services, such as those offered by the National Debt Helpline, can help you navigate your financial challenges and develop strategies to improve your financial health. These counsellors can provide personalised advice based on your circumstances and help you explore all available options.
First home buyer programs with bad credit
If you have bad credit, you may still be eligible for government programs that make it easier to buy your first home. These include the First Home Guarantee, Family Home Guarantee, and Regional First Home Buyer Guarantee, all managed by Housing Australia.
These programs let eligible buyers purchase a property with a small deposit, usually between 2% and 5%, and avoid paying Lenders Mortgage Insurance (LMI). To qualify, you need to be over 18, an Australian citizen or permanent resident, and meet the income and property price limits in your area.
From 1 October 2025, the government will expand the Home Guarantee Scheme to include unlimited places and higher price caps, helping more Australians get into their first home.
How a mortgage broker can help
If you’re struggling to secure a bad credit loan on your own, enlisting the help of a mortgage broker can significantly increase your chances of success.
Mortgage brokers are experts in the lending industry, with access to a wide range of lenders and loan products. They can help you navigate the complex landscape of bad credit loans and find lenders specialising in working with individuals with a bad credit rating.
A mortgage broker will assess your financial situation, guide you through the loan application process, and negotiate on your behalf with lenders. They thoroughly understand the lending criteria and requirements and can match you with lenders who are more likely to approve your personal loan.
Utilising the services of a mortgage broker can save you time and effort and improve the terms of your loan. Book a no-obligation discovery call with our director, Tony Xia, today to get an overview of your options.
FAQ
Most negative listings, such as defaults or missed repayments, stay on your credit report for up to five years.
More serious events, like bankruptcies, can remain for longer. Over time, consistent repayments and good financial habits will help improve your score and reduce the impact of older listings.
This is completely dependent on the lender and your financial situation. Personal loans for bad credit are usually capped at around $5,000 to $30,000, while home loans can still go much higher if you have a stable income, a deposit, and can show genuine savings. We can help you understand what amount you’re likely to be approved for.
Start by showing consistent income and stable employment, paying off any outstanding debts, and avoiding new credit applications. Saving a larger deposit also helps reduce risk for the lender. Working with a mortgage broker can make a big difference, as we know which lenders are open to bad credit applicants and can help you present your application in a way that will increase your chances of success.
There’s no fixed minimum. Some credit providers and non-bank lenders will still consider your application even with bad credit personal loans or unpaid defaults, as long as your financial circumstances are stable.
They’ll assess factors like income, savings, and borrowing power, rather than relying only on your credit score. Each financial product has its own eligibility criteria, and all applications are subject to review under responsible lending and Australian Credit Licence requirements.
Yes, usually. Since lenders take on more risk, interest rates tend to be higher than standard loans. The exact rate depends on your credit and eligibility, deposit size, and the lender’s criteria. Always check the comparison rate to see the true cost of the loan, including any fees or charges.
The good news is that after a period of consistent repayments, you can often refinance to a lower rate later.
If you’ve never had a loan or credit card, you might not have a credit score yet. That’s not bad, it just means lenders have less information about your history. They’ll look at your income, savings, and employment stability instead. A mortgage broker can help you find responsible lenders who work with first-time borrowers.
Our personal loan calculators make it easy to estimate the cost of the loan, including repayments, fees, and interest rates. You can compare different loan amounts, terms, and interest types (like variable rate or fixed) to see what fits your financial circumstances. Keep in mind, comparison rates give a clearer picture because they include most standard fees and charges.
