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How to get bad credit personal loans

Find out the minimum credit score for a personal loan and how to avoid bad credit.

19 December 2022Lloyd Smith 11 min read
What is the minimum credit score for a personal loan?

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Your credit score is a crucial factor when you are in the market for a personal loan. But a bad credit score can limit your options, even when you want to borrow small loans in Australia.

Though that doesn’t mean it is impossible to borrow personal loans. Here’s what you need to know to get a personal loan with bad credit.

Personal loans for bad credit are loans sanctioned to borrowers with poor credit scores that can be used for fulfilling a variety of personal needs such as going on a vacation or paying medical bills.

These loans work just like any other loan. However, since bad credit indicates low creditworthiness and a higher chance of defaulting on loan repayments, lenders charge a higher interest rate and impose stricter lending terms than loans sanctioned to those with good credit.

Individuals with bad credit scores can borrow different types of small personal loans in Australia. The majority of lenders offer these loans without any collateral though it is not uncommon for some to offer secured loans.

Here are some benefits of borrowing bad credit loans:

Provides cash flow

If you are struggling with outstanding debt, it is likely that your cash flow is also poor. You may use up whatever funds are available to pay off the debt, leaving you with little to nothing for your daily expenditure. Borrowing a bad credit personal loan can provide you with much-needed access to cash to get your life back on track and work towards a better credit history.

Helps you consolidate outstanding debts and pay them off

Getting approved for loans for bad credit can also help you to consolidate your debts and pay them off. Consolidating debts makes it easier to handle your finances as you need to be responsible for making only a single payment instead of chasing multiple payment deadlines.

Here are the different types of bad credit personal loans in Australia:

No credit check loans

As the name implies, this is a personal loan without credit check. Borrowers with abysmal credit scores and who have been disqualified by most lenders from borrowing can consider borrowing such loans. They don’t come cheap and often carry a steep interest rate to balance the lending risk. You may also have to repay the loan in a relatively shorter time span.

Examples include payday loans, cosigner loans, and auto title loans.

Secured loans

To borrow a secured loan, you must furnish some collateral to offset the lending risk. Secured loans for people with bad credit is a good option as it increases the chances of getting approval. The interest rate of such loans are lower than their unsecured counterparts, and it is easier to qualify for such loans as long as you have a valuable asset.

Unsecured loans

Unsecured loans for bad credit are the opposite of secured loans -- they do not require you to furnish any collateral.

However, it is harder to qualify for such loans when you have a bad credit score. Moreover, the interest rate of these loans tends to be higher than other types of loans, while the credit limits tend to be much lower.

Bank agreements

Bank agreements are a type of loan with poor credit but the amounts sanctioned are smaller. They are also available for only those borrowers who have a positive banking history. Since the qualification criteria vary depending on the bank, make sure to check whether you are eligible to borrow.

Credit card cash advances

Credit card cash advances are a good option if you are looking for quick loans for bad credit. These short-term loans are provided by your credit card company against your credit card.

But you may have to pay a higher interest rate as compared to the average interest on personal loans. It can be also higher than your card’s purchase APR which is the interest charged on the outstanding dues on your credit card.

Payday loans

A payday loan for bad credit is a great option when you need a small amount of cash (usually $500 or less than that) for a short time. While you can borrow the loan without providing any collateral, the interest rate of such loans tends to be high.

It is not unusual for payday loan packages to come with hidden fees and costs. Make sure to read through the terms and conditions of the loan agreement closely to ensure that you can in fact afford to borrow.

On average, 750 is considered a good credit score for personal loan and a score below 580 is considered bad. Since every credit rating agency follows its own scoring model and rating scale, the exact number for a bad credit score can vary.

Borrowers with bad credit scores can find it difficult to get approved for all loans as lenders believe that they are likely to default on loan repayments. As a result, they may have to apply for loans or credit cards for bad credit that are specifically meant for those with poor credit histories. It's also a good idea to check the minimum credit score for personal loans required to get approved by different lenders.

Here’s what to keep in mind when comparing lenders for personal loans for bad credit in Australia:

What is the APR?

Every loan has a cost of borrowing, which is measured through the Annual Percentage Rate (APR). It includes not only the interest payable but also the fees charged by the lender.

The higher your APR, the more costly your loan.

How much can you borrow?

When borrowing bad credit personal loans in Australia, be mindful of how much you can borrow.

Some lenders may feel confident in lending you the entire amount you need due to low creditworthiness. It is also possible that some may only want to lend $5,000 or above, which can be an issue if you are looking to borrow only $500.

How easy is the application process?

Some lenders may complete the application process online and sanction the loan within a few hours.

Some may even offer a pre-qualification option, so you know your chances of getting approved for small loans for bad credit even before you formally apply.

What are the terms of repayment?

Your loan repayment term is an important factor to consider when comparing different lenders.

For instance, you may decide to borrow small personal loans for bad credit repayable over a short period to save on interest over the life of the loan. However, you may need to pay a hefty monthly instalment to service the loan. So when choosing cheap loans for bad credit, always keep your financial position in mind.

How quickly will the lender disburse the funds?

The timeline for loan disbursal varies depending on every lender’s internal policies.

If you need money urgently, you will want to opt for a lender who can complete the formalities as soon as possible and release the funds within a day or two.

It is possible to get bad credit personal loans from online lending networks or directly from lenders. When applying to an online lending network, you can submit a single application to multiple lenders. Based on the responses received, you can decide which lender you want.

Standalone lenders such as local banks and credit unions also offer personal loans for bad credit both online and in-person. You can either fill out the application form available on their websites or visit their offices. It helps to approach those lenders with whom you have a pre-existing working relationship.

However, given the limitations due to your credit score, you may need to put in extra effort to locate a lender suited to your needs. Remember that there are guaranteed approval loans for bad credit applications -- so keep your options open till you find the right match.

Here are the steps to get a personal loan for bad credit history:

  1. Prepare a shortlist of lenders who offer loans for bad credit history.

  2. Except in the case of personal loans with no credit check, lenders usually perform a soft credit check to determine your eligibility for borrowing bad credit loans. Check your current credit score to know what kind of loans you are eligible to get and which lenders you should approach.

  3. Prepare the documents you need to attach to your loan application, such as: Proof of identity, Proof of residence, Details of income, Bank statements for the last two years and Details of current debts

  4. Use an online personal loan calculator to compare various low credit score loan offers.

  5. Fill out the application form of the selected lender. Depending on the lender, you can complete the process online.

  6. Once your application is approved, you need to sign the loan documentation to receive the funds.

Some loan providers offer small loans for bad credit

But there is no guarantee of getting approved for no credit check personal loans in Australia. The law mandates that every lender make reasonable efforts to know about an applicant’s financial position and then decide their eligibility.

Even if the lender doesn’t look at your credit score to decide your eligibility, they will consider your ability to repay the loan before moving ahead. If you have outstanding loans or your primary source of income is from benefits, you may not be able to borrow small loans with no credit check.

Since your credit score indicates your creditworthiness, it can be challenging to get approved for an unsecured loan. Unsecured loans increase the lending risk as lenders do not have any recourse in case of payment defaults except initiating recovery proceedings. As a result, unsecured loans are only provided to borrowers with excellent credit records.

Usually, you can use the loan proceeds for any purpose. This includes:

  • paying for a medical emergency,
  • covering relocation costs,
  • paying for a wedding,
  • purchasing an expensive item for which there are no specific loan products, or taking a vacation.

Bad credit personal loans are a risky affair for the lender. In case these loans are unsecured, the lender has no recourse to any asset which can be sold off to recover the dues in case the borrower defaults. As a result, it is not uncommon for such loans to carry a higher rate of interest when compared to regular loans available for borrowers with good credit scores.

High credit scores allow borrowers to negotiate interest with lenders. Since that is not an option for those borrowing personal loan with bad credit score, offering security for the loan is a good way to reduce the interest rate. Having recourse to security reduces the lending risk, making it viable for the lender to lend at a lower interest.

That said, there is no guarantee of finding a loan with bad credit rating at extremely low interest, even if you are willing to furnish security.

Loans for bad credit can be approved fast, but there are no guarantees. The exact timeline depends on the bank or financial institution you are approaching. Approval timelines also depend on the documents you furnish. Incomplete documentation can result in back and forth and delay the process.

Here are some other tips to improve your chances of receiving quicker approval:

Demonstrate positive credit behaviour

Don’t fall behind on paying your bills and dues. Doing so will ensure that your credit score doesn’t plummet even further and boost your chances of receiving approval.

Pay off outstanding debts

The lesser debt in your kitty, the greater your chances of getting approved. Each outstanding debt impacts your borrowing ability as the lender anticipates a probability of loan default. Paying off your debts to some extent shows lenders that you are a responsible borrower and you are willing to take steps to reduce your debt burden even though your credit score may not be perfect.

Lower credit limits on your existing cards

Lowering the limit minimises the amount of unsecured debt you can incur. Having a very high limit may tempt you to spend recklessly, worsening your credit score if you cannot pay them on time. A lower credit limit also results in a better credit utilisation ratio, improving the chances of the lender green-lighting your loan application.

Debt consolidation is a strategy to manage multiple debts by combining them into a single one. You can consolidate multiple loans through a single bad credit personal loan and make one repayment every month instead of paying each loan instalment separately.

Even though there are bad credit debt consolidation lenders in the market, getting approved for debt consolidation for bad credit loans is not always easy. You will need to fulfil the minimum credit score requirement of the lender and also face restrictions on the maximum amount of debt that can be consolidated.

So, as we’ve discovered, a bad credit score can vary from one data provider to another. Typically, it’s safe to say a credit score rating above a minimum of 550 will help you qualify for a personal loan. However, in saying that, there will be lenders who will require a much higher credit score and others who will ask for much less. For example, according to Forbes advisor, the recommended minimum credit score to qualify for a personal loan is 670.

To make it easier for you to understand, here’s a quick table of Experian’s credit score bands which we use at ClearScore.

Credit score

Experian band


Below average and likely considered to be a poor credit rating.


Fair, but could be better.


This is good and considered an average score.


If you’re sitting here you’re in a very good position and above the average score.


This is seen as an excellent score and way above the average.

When it comes to credit score ratings, the higher, the better. We strongly advise you to carefully do your research and seek advice from professionals to determine what will be best for your circumstances.

Finding out your credit score rating is quick, simple, and it’s free. You can access this information through a number of credit reporting bodies. In Australia, the three main credit reporting bodies are Equifax, Experian and Illion. Alternatively, you can check your credit score with ClearScore.

To access your credit score, you will need to confirm personal information, such as:

  • Name
  • Date of Birth
  • Contact address
  • Driver’s licence number

Once you enter the relevant information, and all is good, you should have access to your credit score within a matter of minutes.

Steps to improve your credit score

To every problem, there is always a solution. The same goes for a bad credit score. How you may ask? It’s simple. Improving your credit score comes from consistently managing your finances well every month. It’s not rocket science. You can do this by implementing the following steps:

  • Always pay your bills on time - a missed payment can negatively impact your credit score. If this does happen, try to make the payment within the 14-day grace period. Remember, missing the occasional payment won’t throw you into the naughty box. But don’t make a habit of it.
  • Avoid negative entries - defaults and bankruptcies can remain on your credit history for five years. But this is fixable. If you've been missing payments, it’s time to start repaying those debts to improve your credit history.
  • Don’t apply for a lot of credit - too many credit applications can negatively impact your credit score and raise a few eyebrows. So, it's best to keep this at a minimum and avoid making too many credit applications in a short period.
  • Watch out for fraud - fraudulent activity is something that unfortunately happens quite often. Therefore, you need to keep an eye on your credit report regularly so you can pick up on any suspicious activity. By doing so, you’ll save yourself from not only a damaged credit score but also having to pay for someone else's actions.
  • Keep a regular eye on your finances - not only is it good to keep an eye on your finances to pick up suspicious activity, but it will help you manage your money better.

Best personal loans for bad credit in Australia are the ones you are eligible to borrow and can repay on time. Defaulting on payments will bring your score down further, making it difficult for you to borrow on favourable lending terms.

But before you apply for any bad credit small loan, be sure to check your current credit score to know where you stand. With ClearScore, to receive a free copy of your credit report and check your credit score.

Lloyd Smith Image

Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.