What loans can you take out if you have bad credit?

In this article

• What is a secured loan for bad credit?

• Benefits of secured loans for bad credit

• Different types of secured loans

• Secured vs unsecured: What's the difference?

• What assets may I be required to use as collateral?

• What can I use a secured loan for?

• How to get a secured loan for bad credit?

• What minimum credit score do I need for a secured loan for bad credit?

• Conclusion

Credit score plays a critical role in determining your eligibility to borrow. When you don't have a good credit score, your options to borrow a loan in the market are limited.

However, some lenders extend personal loans for bad credit, provided you can secure it with a valuable asset you own.

Here's everything you need to know about borrowing small secured loans for bad credit:

What is a secured loan for bad credit?

A secured loan is a loan that is provided against collateral such as your house, jewellery, or car. The collateral protects lenders if you default on repayment, as lenders can take possession of the collateral and sell it to recover the loan amount. The asset provided as security should be at least worth the amount you intend to borrow -- the higher the value of the collateral, the larger the amount you can borrow.

It is usually assumed that no lender wants to provide home loans with bad credit history. However, certain lenders in the market specialise in extending loans to borrowers with bad credit scores by structuring it as a secured loan. Borrowers with less attractive credit histories find it easier to qualify for secured bad credit loans as it reduces the risk of lenders not getting paid in case of default.

Benefits of secured loans for bad credit

The chief advantages of borrowing secured loans for bad credit are:

Lower interest rates

You pay lower interest and other fees than other types of loans in the market, such as payday loans, as the collateral reduces the risk of lending. As a result, you save hundreds of dollars that you can use elsewhere.

Improved borrowing power

When you don't have a perfect credit history, finding a lender who's willing to offer unsecured emergency loans for bad credit is a challenge. However, when you offer security, your borrowing power improves. You are also likely to be approved for a higher borrowing limit than unsecured loans.

Credit building tool

Taking out a secured loan for bad credit can be a credit-building tool, provided you pay your monthly instalments on time. This can improve your credit profile and make you a better candidate for future borrowing.

A better option for debt consolidation

If you are considering borrowing a personal loan for debt consolidation for bad credit, qualifying for an unsecured one is tricky. Moreover, the lower your credit score, the higher the interest charged.

In such cases, a secured loan stands out as a better option. Getting approved is easier as long as your collateral covers the loan amount. Plus, you can also get a better interest rate.

How Much Does a Secured Loan Actually Cost? Repayment Examples

Lower interest rates are a key benefit of secured loans - but how much could you actually save in dollar terms? Below are indicative monthly repayments at three common loan amounts, comparing a typical secured rate with a typical unsecured rate for a borrower with bad credit. All figures assume principal-and-interest repayments with no fees for simplicity.

Indicative monthly repayments - secured vs unsecured

• $5,000 loan over 3 years - At a secured rate of around 10 % per annum, the monthly repayment is roughly $161, with total interest of approximately $800. At an unsecured bad-credit rate of around 20 % per annum, the monthly repayment rises to about $186, with total interest of roughly $1,690. That is a saving of close to $890 over the life of the loan simply by offering collateral.

• $15,000 loan over 5 years - A secured rate of 10 % per annum produces monthly repayments of approximately $319 and total interest of roughly $4, 120. The same loan unsecured at 20 % per annum costs about $397 per month, with total interest near $8,850 - almost double.

• $30,000 loan over 5 years - Many borrowers ask, "how much would a $30,000 personal loan cost per month?" At a secured rate of 10 % per annum, expect monthly repayments of around $637 and total interest of about $8,240. At 20 % per annum unsecured, the monthly figure climbs to roughly $794, and you would pay close to $17,700 in interest over five years.

How collateral value and loan-to-value ratio affect your rate

Lenders assess the loan-to-value ratio (LVR) - the loan amount divided by the value of your collateral. A lower LVR signals less risk, so you are more likely to be offered a competitive rate. For example, securing a $15,000 loan against a vehicle worth $25,000 gives an LVR of 60 %, which most lenders view favourably. Securing the same amount against a car worth only $16,000 pushes the LVR above 90 %, and the lender may charge a higher rate or decline the application.

Total interest over 3-year and 5-year terms

Shorter loan terms mean higher monthly repayments but significantly less interest paid overall. On a $15,000 secured loan at 10 % per annum, choosing a 3-year term instead of 5 years reduces total interest from about $4,120 to roughly $2,420 - a saving of $1,700. When budgeting for a secured loan, consider whether you can comfortably manage the higher repayment of a shorter term, as the long-term savings are substantial.

These figures are indicative only. Actual rates depend on your credit profile, the lender, and the collateral offered. Use them as a starting point when comparing quotes.

Different types of secured loans

The types depend on the intended end use of such loans.

Broadly, secured loans are categorised into the following:

Car loans

If you want to purchase a new or used car, you can furnish the car as security and take out the loan. Since the loan is specifically for buying a car, you can't use the loan amount elsewhere.

Home equity loans

You can get a home equity loan by offering your equity interest in the property as collateral. Usually, there are no restrictions on the end use of proceeds of a home equity loan. You can use it to fund investments, pay for a vacation, renovate your home, or even create an emergency fund.

Mortgage loan

You can borrow a loan to finance the purchase of a house. The lender creates a mortgage on the house you intend to purchase and structures it as a secured home loan. The mortgage remains till you repay the loan in full. The end use of a secured home loan is restricted -- you cannot use it for any other purpose other than paying for the house.

Secured credit cards

These cards require the borrower to deposit a specified amount which acts as the collateral. The credit limit of the card is based on the amount deposited. Borrowers with poorer credit histories prefer applying for secured credit cards as the entry barrier is low. Credit cards for bad credit can also serve as a credit-building tool, provided the issuer reports repayment history to credit reporting bodies.

Which Lenders Offer Secured Loans for Bad Credit in Australia?

Australian borrowers with poorer credit histories have several categories of lender to consider, each with distinct advantages and trade-offs. While no lender can promise bad credit secured loans with guaranteed approval - every application is assessed on its merits - some lender types are far more accommodating than others when your score is below average.

How to choose the right lender category

Start by checking your credit score for free with ClearScore so you know where you stand. If your score sits above 500, it is worth approaching a major bank or credit union first, as you will benefit from lower rates. Scores between 400 and 500 are better suited to non-bank lenders, while borrowers below 400 may need to focus on specialist bad-credit providers who place more weight on the collateral than the score itself.

Regardless of the lender category, always compare the comparison rate - not just the advertised rate - because it includes most fees and charges. Requesting quotes from two or three lenders within the same category gives you negotiating leverage without stacking multiple hard enquiries in a short window, which can further lower your score.

Secured vs unsecured: What's the difference?

As the name suggests, a secured loan is a form of lending where the banks or financial institutions provide the loan against security. The security can be any valuable asset owned by the borrower, such as their home equity, vehicle, financial investments such as shares of a company or certificates of deposit, and other valuable assets such as art, jewellery, and antiques.

If the borrower defaults on repaying the loan, the lender can sell off the asset to recover the outstanding amounts. As a secure loan helps lenders to minimise the risk of lending, they are offered at a better interest rate. Applying for a secured loan is also one of the easy ways to get a loan with bad credit.

On the other hand, unsecured loans are those loans where borrowers don't have to furnish any collateral for borrowing money from a lender. Lenders charge a higher interest rate for such loans and may also impose additional conditions to reduce their risk of lending. They may also be stricter with who can borrow a loan, making it difficult for borrowers with bad credit histories to qualify.

What assets may I be required to use as collateral?

The collateral for secured bad credit personal loans usually depends on what you want to use the loan proceeds for. Here's a breakdown:

• Car: If you are applying for car loans for bad credit, you can offer the new car as collateral. You can also provide your existing car, if any, as collateral for other types of secured finance.

• Property: Your ownership of any real estate, whether residential or commercial, can be pledged as collateral for borrowing loans for bad credit history.

• Other valuable assets: High-value jewellery, art, or antiques that you own can be furnished as collateral for a security loan.

What can I use a secured loan for?

Depending on the type of loan you are borrowing, there can be restrictions on the end use of a secured loan.

For example, in the case of borrowing a cash loan using car as a collateral where the entire risk of the loan is offset against a car, the lender may permit you to spend the proceeds only towards purchasing the car. But, if you borrow a loan against home equity, you can spend the money wherever you choose.

The lender specifies the end use when approving your loan application.

How to get a secured loan for bad credit?

You can look online to identify lenders that work with bad credit borrowers and provide them with a secured loan. The exact eligibility for secured loans in Australia for borrowers with bad credit varies depending on the lender you are approaching. Usually, you should be

• at least 18 years,

• an Australian citizen or hold a permanent resident status; and

• have a stable source of income

to be considered eligible for a secured loan for bad credit.

Unless the lender specifies that they extend no credit check loans, they pull out your credit score from credit reporting bodies to determine whether you qualify. So before you approach any lender, have a look at your current score and make a shortlist of lenders you can approach. Online platforms such as XX allow you to check your credit score for free. All you need to do is furnish personal identification information for authentication.

Keep copies of the following documents handy, as you may need to furnish them in support of your application:

• Identity proof

• Residence proof

• Details of income

• Statement of accounts for the last two years

• Outstanding debts

You can fill out the loan application form online or offline by visiting the lender's office. However, remember that there are no guaranteed loans for bad credit in Australia, as each lender considers the applicant's financial position, how much they want to borrow, and what collateral they will furnish, and then decides their eligibility.

The turnaround time is relatively quick -- you can expect to hear from the lender within two days. Some lenders also offer instant secured loans, and the disbursal of funds takes only a few hours.

What minimum credit score do I need for a secured loan for bad credit?

Since every credit reporting body follows a unique scale, laying down a minimum score to be eligible for a secured loan for bad credit is difficult. Additionally, what an individual lender considers to be an acceptable credit score for extending a secured loan can also vary greatly.

Having said that, borrowers with credit scores in the range of 400 to 500 are ideal candidates for these loans.

What Hurts Your Credit Score - and How a Secured Loan Can Help Rebuild It

Understanding what dragged your score down is the first step toward repairing it. In Australia, the biggest factors that damage a credit score include missed or late repayments, defaults and court judgments, too many credit enquiries in a short period (known as enquiry stacking), and maintaining a high credit utilisation ratio on revolving accounts such as credit cards. Bankruptcy is the most severe mark, remaining on your report for five years from the start date, or two years from when the bankruptcy ends, whichever is later.

Top factors that damage your credit score

Defaults carry the heaviest penalty - a single default over $150 stays on your credit file for five years and can slash your score by hundreds of points. Enquiry stacking is a quieter threat; each hard enquiry from a lender lowers your score slightly, and applying to multiple lenders within a few weeks compounds the effect. High utilisation - consistently using more than 30 % of your available credit limit - signals financial stress to scoring models even if you never miss a payment.

How consistent secured-loan repayments appear on your credit report

Under Australia's comprehensive credit reporting regime, positive repayment behaviour is recorded alongside negative events. Every on-time secured-loan repayment is logged on your credit file, gradually building a pattern of reliability that counterbalances past blemishes. Because secured loans often have fixed monthly instalments, they create a predictable repayment schedule that is easy to manage - reducing the chance of accidental late payments that could set your progress back.

Realistic timeline for rebuilding your score

Rebuilding your score is not instant, but it is achievable. There is no set timeframe, and no improvement is guaranteed. Where your lender reports repayment history, each on-time payment is recorded on your file, but how much difference that makes depends on the credit reporting body, the scoring model and the rest of your credit history. Pairing disciplined secured-loan repayments with other good habits - keeping credit card balances low, avoiding unnecessary new enquiries, and paying all bills on time - accelerates the recovery. You can track your progress for free by checking your score regularly with ClearScore.

Conclusion

'I need a loan but have bad credit' need not hold you back from borrowing. Even if you are well below the cut-off for low credit score home loans in Australia, you can still get money by approaching suitable lenders and furnishing valuable security to reduce their risk, provided you only take on credit you can afford to manage and repay.

With ClearScore, you can check credit score for free and review your credit reports before applying for any kind of secured loans.

Frequently Asked Questions About Secured Loans for Bad Credit

Is it difficult to get a secured loan with bad credit in Australia?

It is generally easier than obtaining an unsecured loan. Because the lender holds collateral, the approval process places less weight on your credit score and more on the value of the asset you pledge. You will still need to demonstrate a stable income and the ability to meet repayments, but many non-bank and specialist lenders are specifically set up to work with borrowers whose scores fall below the thresholds of major banks. Preparing your documents - proof of income, identification, and asset valuations - before you apply speeds up the process considerably.

Can I get a secured loan with extremely bad credit (below 400)?

Yes, it is possible, although your options narrow. Most major banks and credit unions require a minimum score well above 400, so you would typically need to approach a specialist bad-credit lender. These lenders focus heavily on the collateral's value and your current income rather than your credit history alone. Expect higher interest rates and stricter loan-to-value requirements. If your score is extremely low, consider taking small steps to rebuild it first - even a modest improvement can unlock better terms.

What's the easiest secured loan to get approved for?

Secured car loans and pawnbroker-style asset loans tend to have the simplest approval processes. Car loans are straightforward because the vehicle itself serves as collateral, and many lenders offer same-day decisions. Secured credit cards are another accessible option: you deposit funds upfront, and the deposit acts as your credit limit, so the lender's risk is minimal. Both products are widely available to borrowers with poorer credit histories.

Can I use a secured loan to pay for medical or surgical expenses?

It depends on the type of secured loan. A home equity loan, for example, generally has no restrictions on how you spend the funds, so it can be used for medical or surgical costs. A car loan, by contrast, must be used to purchase the vehicle. If you need flexible spending, look for a secured personal loan or home equity product and confirm with the lender that medical expenses are a permitted end use before signing.

What happens if I can't repay my secured loan?

If you fall behind on repayments, the lender will typically contact you to arrange a revised payment plan or hardship arrangement - Australian lenders are required to consider hardship applications under the National Credit Code. However, if you continue to default, the lender has the legal right to repossess and sell the collateral to recover the outstanding debt. Any shortfall after the sale may still be owed, and the default will be recorded on your credit report for up to five years, making future borrowing more difficult. If you are struggling, contact your lender as early as possible to explore your options.