Having bad credit can make it difficult for prospective loan applicants to access the finance that they may need, but there are still a number of options available to bad credit borrowers. Borrowers with less than perfect credit histories have both secured and unsecured bad credit loans available to them, but lower interest rates and fees can be found if someone is able to offer security. Lenders may also be more willing to approve customers who provide security, as the loan is less of a risky venture. Learn more about taking out a secured loan as a bad credit borrower below.
If you're experiencing financial hardship and would like to speak to someone for free financial counselling, you can call the Financial Counsellors hotline on 1800 007 007. It is open from 9:30am to 4pm, Monday to Friday. When comparing short term loans, ensure you take into consideration any fees, charges and rates you may be charged. It's important to weigh up all your options before applying for any form of credit.
⚠️ Warning about Borrowing
Do you really need a loan today?*
It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.
Check your options before you borrow:
- For information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor
- Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan
- If you are on government benefits, ask if you can receive an advance from Centrelink: Phone: 13 17 94
The Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.
* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.
What is a secured bad credit loan?
These loans can be used to purchase a new vehicle or can be taken out if someone already has an asset to offer as security. Assets used as security on loans are usually vehicles or home equity, but some lenders will accept almost anything of value, such as art or jewellery, as loan security. It will be a requirement that the asset has value equal to or surpassing the value of the loan.
Interest rates on these loans can be more competitive than unsecured loans. People who may not be eligible for an unsecured loan can have a better chance of being approved for a secured loan.
How can you get a secured loan with bad credit?
Getting a secured loan isn’t difficult as there’s a variety of lenders in this space. Typically, the following process will apply. Customers should:
- Go through the offerings of bad credit loan providers and compare the fees, rates and features.
- Establish that their credit history, income and employment is in line with the requirements of the lender they want to apply with.
- Find out how much they'll have to repay each month, and check if the repayments suit their budget.
- Ensure that they can keep up with the repayments before submitting an application.
- Submit an application form, including all relevant information.
- Accept the terms and conditions (subject to approval) before the lender sends them their loan, which is usually transferred straight into their account.
Types of secured bad credit loans
The kind of secured bad credit loan someone can get depends on the kind of collateral that they provide, but generally they;ll have the choice of:
- Car loans. If someone is looking to purchase a new or used car, they can use the car to secure the loan and receive a lower rate from the lender. These loans may have restrictions as to the type of car applicants can buy and what they can do with the loan amount.
- Home equity loans. If someone has equity in their home they can consider getting a home equity loan where the equity they hold works as collateral.
- Secured personal loans. Customers can also consider getting a secured personal loan. This loan is similar to the above in that customers can purchase an asset such as a car and use it as security, but they also have the option to use an existing asset as collateral. This includes a car, boat, caravan, or motorbike, and some lenders even let applicants use jewellery or any other high-cost asset.
How to compare bad credit secured loans
Going through the following should give a good indication of what to expect when comparing loan options.
- Loan amount. The minimum and maximum someone can borrow varies from one loan to the next. The maximum someone can borrow also depends on the security they provide along with their ability to repay the loan.
- Loan term. The loan term of secured bad credit loans also varies depending on the loan that they choose. While a personal loan might offer terms of no more than 12 months, a car loan could give applicants up to five or seven years, and they could get even longer with a home equity loan.
- Interest rate. Applicants generally have the option of a fixed or variable rate, but as these are bad credit loans, expect the rate to be higher than with other forms of credit.
- Flexibility in repayments. Find out if the loan you lets customers make weekly, fortnightly, or monthly repayments as per an individual's needs. Also see if any early repayment penalties or extra repayment fees apply.
- Use funds for any purpose. Unless someone is applying for a car loan to purchase a car, they can use the funds from secured loans for just about any legitimate purpose.
- Building credit. Getting a bad credit loan gives loan customers the means to repair their credit history. Loan applicants can do this by ensuring that they make your ongoing payments on time.
Is there anything to keep in mind before applying?
Before committing to a bad credit secured loan, the main factor that customers should probably keep in mind is that the lender will have the rights to repossess any property used as security in the case of a loan default. With that in mind, applicants should:
- Borrow according to their budget and don’t apply if they will have trouble repaying the loan.
- Go through the loan’s terms and conditions to check just how much they could end up paying in fees and charges.
- Not agree to take on extras like loan insurance until they have gone through the PDS.
- Consider the loan terms. While short terms will require higher repayments, it will also cost less over the life of the loan in interest. This means shorter terms can lead to savings on interest.
- Account for the car’s depreciation in value over time, if considering a car loan.
Bad credit secured loan eligibility criteria
Applying for any kind of loan requires borrowers to meet some eligibility criteria, and this is no different when it comes to secured bad credit loans. Applicants must be over 18 years of age, must be a permanent Australian resident or an Australian citizen, and they must have a regular source of income. They need to also have various details and proof of ownership of the collateral that they want to secure the loan with.
Applying for a secured loan will require that someone undergoes an identity verification process, and they'll also have to provide details about their employment and existing financial situation.
Have more questions about these loans?
How quickly can I get a secured bad credit loan?
Some lenders inform you of your application’s status almost immediately after you submit your application. While some lenders can give you access to funds on the same day or by the next business day after approval, you could have to wait longer for others.
How can I apply for such a loan?
You can apply for one of these loans online. Lenders also give you the option of applying over the phone and in-store when physical locations are available.
Can I apply for a secured loan if I receive Centrelink payments?
Yes, some lenders accept applications from individuals who receive Centrelink payments. These loans usually comes with additional eligibility criteria.
Find out what lenders will consider Centrelink borrowers