What is bad credit finance?

Lenders read your credit report alongside the documents you supply. Credit reporting bodies such as Equifax hold default listings, payment history, current accounts and enquiries, and you can request your own file and have errors corrected. A default can only be listed where the debt is at least $150, is 60 or more days overdue and the required written notices have been given. It then stays on the file for about five years from the date of the listing, and a serious credit infringement, sometimes called a clearout, stays for seven years.

Several credit enquiries in a short period look like active searching, which lenders read as higher risk. Expect to provide identification, recent payslips, bank statements and proof of address, plus evidence of Centrelink payments if they form part of your income. Steady income and less existing debt make the case stronger.

Unsecured personal loans pledge no asset and suit smaller amounts, but they carry higher rates on an impaired file. Secured loans are backed by something you own, such as a vehicle or savings, which lowers the lender's risk. Bad credit car loans are usually secured against the car itself, and guarantor loans rely on someone else's guarantee to support the application.

Payday and small-amount credit are short-term and very expensive, and repeat borrowing is how a small debt grows. Specialist lenders and brokers work in this segment and can reach lenders that accept impaired credit, sometimes with a broker fee on top. Whatever the product, look past the advertised rate at establishment fees, monthly account fees, arrears fees and default administration fees.

High-cost credit carries real risk. Interest and fees can make a small loan unaffordable and push a borrower into borrowing again. If the loan is secured, missing payments can end in repossession and further costs. A guarantor becomes legally liable, so their credit file and their assets are exposed as well.

Protections do apply, but they turn on the type of borrowing. For consumer credit a lender must assess capacity to repay before offering the loan; credit taken predominantly for business purposes sits outside those obligations, and the lender applies its own credit policy instead. If something goes wrong, use the lender's internal dispute process first, then the Australian Financial Complaints Authority. Free, independent financial counsellors can help you prioritise debts, and if your credit report holds an error, contact the reporting body and the lender to have the record corrected.