Bad credit finance

Your credit score tells potential lenders whether you have a good or bad financial track record when it comes to borrowing money. Whether you’re looking for a home loan, a car loan, a personal loan or a credit card, lenders may be less inclined to deal with you if your bad credit score makes you look like a risky borrower.

To learn more about credit scores, including how to check your score, what it means for your finances, and what you can do about bad credit, download our guide:

Many specialist lenders offer home loans for ‘non-conforming’ borrowers who have difficulty securing a more traditional home loan due to:

• paid or unpaid defaults
• tax debt
• repossessions
• too many loan enquiries
• discharged bankruptcies (when you have been released from bankruptcy status)
• being discharged after a Part 9 Debt Agreement (when your creditors agree to accept an amount of money that you can afford to pay to settle your debts)

Be aware:

• Bad credit home loans come with higher interest rates and fees, as the lender is seen to be taking on more risk. Once your negative listings expire from your credit report (and provided you meet your repayments), you could refinance to a home loan with a lower interest rate.
• Avoid trying your luck by applying for multiple different home loans, as this will further damage your credit score. An alternative is to see a broker or financial consultant who deals specifically with borrowers who have an impaired credit history.
• Most lenders assess borrowers with bad credit on a case-by-case basis. They will most likely want to meet with you, hear about your circumstances and examine your finances to see if you’ll be able to service a loan. Have your tax returns and pay slips ready to show you earn sufficient income.

bad credit personal loan is designed for borrowers with an impaired credit history. In some instances, they can help those with bad credit to consolidate their debts so it’s easier to pay them off. For example, a borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate.

Personal loans come ‘secured’ and ‘unsecured’. A bad credit personal loan is ‘secured’ when the borrower offers up an asset, such as a car, as collateral. The lender can then seize the asset if the borrower fails to repay the loan. An ‘unsecured’ bad credit personal loan doesn’t have an asset as security, and so comes with a higher interest rate than a secured loan.

Be aware:

• Bad credit personal loans come with higher interest rates than regular personal loans, so make sure you do your research to find some of the most competitive rates on the market.
• Each lender has its own policy, but generally you’ll find it hard to be approved for a bad credit personal loan above $50,000.
• While bad credit lenders may be sympathetic to your circumstances, they usually have stringent application processes to ensure you can handle your repayments.

If you need a car for your family or work but are concerned your credit history will make it difficult to get a loan, there are options available to you. Bad credit car loans cater for borrowers with an impaired credit history. They are almost always secured by the vehicle you are purchasing as an asset. If you can’t make the loan repayments, the lender will repossess your asset.

Be aware:

• Bad credit car loans come with higher interest rates compared to more traditional car loans, due to the added risk for the lender.
• Car loan brokers and specialists are available for borrowers with a bad credit history. They can also assist with helping you improve your credit score.
• You will need to purchase comprehensive insurance to get approved for a bad credit car loan, so it’s a good idea to include this cost in your budget.

Credit cards can help Australians manage their purchases and everyday expenses, though their interest charges can quickly add up if you’re not careful. If you have bad credit, it may be more difficult to be approved for a credit card, as lenders may be concerned aboutyour ability to manage your repayments.

Some lenders have credit card options available for bad credit borrowers, as well as balance transfer credit cards that can be helpful for clearing the balance owing on existing credit cards – paying off your outstanding debts can help you become a less risky borrower.

Be aware:

• Bad-credit credit cards are more likely to have higher interest rates and/or fees than other credit card options.
• If you transfer your currently owing credit card balance to a new card, then start spending on your old cards again, you risk ending up in even more debt.
• Bad-credit credit cards may have lower credit limits and tighter restrictions on how they can/can’t be used.

Short term loans include small loans such as payday loans for amounts under $2000, as well as medium-amount loans for amounts under $5000. Short term loans tend to be repaid over a matter of months or even weeks, and often have very high interest rates and/or fees.

If you’re in financial hardship and are looking to borrow a small amount, it’s important to compare your options before applying for a short term loan, as you could be in for high costs if you’re not careful.

Be aware:

Short term loans often have very high interest rates and/or penalty fees if you miss a payment, so you’ll want to be confident you can repay the loan before making an application

Some short term loans have no credit checks, though you’ll often still need to prove you have a stable income to repay the loan.

Borrowers in bad financial situations may be eligible for a small no-interest loan to pay for essentials.