How to get a personal loan with average credit

What is a credit score?

First things first, let's talk about what a credit score actually is. It's a number between 0 and 1200 which represents your credit character. The lower your number, the more problematic your credit history is and the less trustworthy lenders will deem you. The higher your number, the better your credit profile is.

If you have an above average or excellent credit score you'll find it easier to get loans. You'll also likely benefit from lower rates and other offers.

What is an "average" credit score?

What constitutes an "average" score will depend on the credit rating agency. Here are the average scores for each credit rating agency.

What's the minimum credit score required to get a personal loan in Australia?

In general, most traditional lenders will require you to have at least a "good" credit score to qualify for a personal loan. The higher your score, the better your chances. If you're concerned about your score, you may want to consider a lender that offers risk-based personal loans. That way, you're still likely to get a loan, but you should be prepared to pay more.

What personal loans can I get with an average credit score?

• Unsecured personal loan

It's still possible to get an unsecured personal loan with an average credit score, but you might find you end up with higher interest rates.

• Secured personal loan

A secured personal loan will require an asset as security. Providing an asset will offset the lender's risk, making them more amenable to lending to you. Generally, secured loans come with lower interest rates and higher borrowing amounts. You can also apply with a guarantor, which can help your chances of approval.

• Peer-to-peer personal loan

Peer-to-peer loans involve a third-party lender that matches borrowers to private, individual investors. The third-party acts as a facilitator inviting investors to finance loans in a portfolio, classified by their level of risk. Peer-to-peer loans offer risk based pricing, where your interest rate is determined by your credit score. With an average score, you're likely to get a higher rate.

• Car loan

Car loans are secured by the car you've purchased, thereby making them lower risk to lenders. It's likely, however, that with an average score, you'll get a higher interest rate.

What will my interest rate be with an average credit score?

Lenders now offer risk-based pricing to determine the interest rate of the loan.

With risk-based loans, the lender doesn't offer a set interest rate. Instead, there will be a range corresponding to your credit score. In general, the better your credit score, the less risk for lenders. This means you'll pay a lower interest rate.

For instance, a lender may advertise interest rates between 12.99% p.a. and 19.99% p.a. If you have good or excellent credit, you're likely to be offered a rate closer to 12.99% p.a. An applicant with average credit, meanwhile, may get an offer closer to the upper limit of 19.99% p.a.

Besides your credit score, the lender will also take into account the following:

• The loan amount
• The loan term
• Your financial history
• Your employment history
• Your personal circumstances.

Expert insight: Do your research

"If you know your credit score has room for improvement, it's even more important to do your research before applying. Hard credit enquiries from declined loan applications can lower your score further.

A good first step is to check that you meet the lender's eligibility criteria. If you can't find this information on their website, you can call the lender to confirm.

Getting a no-obligation quote is also a smart move to see your interest rate and what your loan repayments will be. Be aware that with an average score, your interest rate is likely to be higher than what's advertised."

Jonathan Wu

Chief operating officer & chief product officer, MONEYME

How do I compare risk-based personal loans?

It can more difficult to compare loan products with risk-based pricing. This is because you won't know the rate you'll be offered until you apply. The following may, however, help with the comparison:

• Interest rate range. While you won't know the exact rate you'll be offered, you could still take the rate range into consideration when comparing.
• Security. Is the loan secured or unsecured? If you have residential property to offer as security, you're likely to be offered better terms. Providing security will also increase your chances of approval.
• Fees and charges. Fees like application fees and ongoing fees contribute to the cost of your loan. Other factors like early repayment fees and early exit fees are also important to watch out for, particularly if you want to make additional repayments and pay off the loan early.
• Eligibility. Always ensure you're applying for a loan you're eligible for. Besides credit requirements, they will also look into your income. This is to ensure you can repay the loan without difficulty.

Why compare personal loans with Finder?

Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)

Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest.

Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.

Frequently asked questions

• Can I get an idea of the interest rate for a risk-based loan before applying for it?

  While you won't get a definite rate until you've applied, most lenders will give you a rate estimate without requiring a formal application. Make sure you confirm with the lender that this enquiry will not be noted on your credit file.

• What's the difference between a personal loan and credit card?

  The main difference is that personal loans provide you a set amount of money to be repaid by a predefined payout date. A credit card, meanwhile, provides revolving credit with a less structured repayment schedule. Credit cards attract higher interest rates than personal loans, even with risk-based pricing.

• Will my overseas credit score impact my ability to get a personal loan in Australia?

  The answer is no. Your credit score is not recognised worldwide and your overseas score will not be taken into account in your loan application in Australia. But you will have to meet the Australian lender's criteria, including residency and employment requirements. Your Australian credit history will also be taken into account.

• Why is my credit score different?

  There are several reasons why your credit score can differ between agencies. It all comes down to the scale (0 to 1,000 or 0 to 1,200), the calculations they use and the information they have.

  Credit providers may not provide this information to all credit reporting agencies. This data may also be provided at different times, accounting for a difference in scores.

  The differences in scores aren't something you should worry about. It's a feature, not a bug. You could, however, check your credit reports to make sure the information entered is correct.

Written by

Elizabeth Barry

Journalist

Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio

Elizabeth's expertise

Elizabeth has written 189 Finder guides across topics including:

• Banking
• Personal finance
• Investing