Personal Loans with Bad Credit in Australia

A personal loan with bad credit in Australia is possible, but the costs are significantly higher. Borrowers with an Equifax score below 505 typically face interest rates between 19.9% and 29.9% p.a., compared to 6% to 12% for applicants with good credit. Around 14% of adult Australians, more than two million people, fall into the below-average credit category. Here is what each credit tier means for your loan options, rates, and approval chances.

Why bad credit personal loans cost more

Lenders price risk. A lower credit score signals a higher chance of missed repayments, so lenders charge more to offset that risk. Australians borrowed $9.3 billion in personal loans during the September quarter of 2025 alone (ABS), and lender competition is fierce at the top end of the credit spectrum. At the lower end, fewer lenders compete, which pushes rates up further.

The gap is measurable. The average unsecured personal loan rate across all borrowers sits at 13.87% p.a. For borrowers with below-average credit, that figure can climb above 25%. That difference on a $15,000 loan over five years adds roughly $5,400 in extra interest.

What counts as bad credit

Credit scores in Australia vary by bureau, but Equifax is the most widely used by personal loan lenders. Their scoring system runs from 0 to 1,200 and breaks into five tiers.

Common causes of a low score

A credit score drops when negative events hit your credit file. The most common are missed or late repayments, defaults (debts over $150 left unpaid for 60+ days), court judgments, bankruptcy, and multiple credit applications in a short period. Each hard enquiry stays on your file for five years. Defaults stay for five years from the date of listing, and bankruptcy stays for either two years from discharge or five years from the date it was registered, whichever is later.

How lenders assess bad credit applications

The credit score is only the starting point. Specialist lenders dig deeper into your financial behaviour to decide whether to approve and at what rate. Understanding what they look for can improve your chances.

Bank statement analysis

Most specialist lenders request 90 days of bank statements and scan them for patterns. They look for consistent income deposits, regular savings behaviour, and responsible spending. Red flags that trigger declines include frequent gambling transactions, excessive buy-now-pay-later usage, regular dishonour or overdraft fees, and unexplained large cash withdrawals. Some lenders use automated bank statement tools that categorise every transaction and flag risk indicators within minutes.

Income and employment stability

Lenders typically require three to six months of continuous employment or consistent income. Self-employed borrowers generally need 12 months of ABN registration and either BAS statements or tax returns showing adequate income. Centrelink payments count as income with some specialist lenders. For more on borrowing with Centrelink income, see our guide to Centrelink loans.

Existing debt load

Your debt-to-income ratio matters as much as your credit score. A borrower earning $60,000 with $5,000 in existing debt has a different risk profile to someone earning the same amount with $30,000 owing. Lenders calculate your net surplus income after all commitments, including rent, existing loan repayments, credit card limits (not balances, limits), and BNPL obligations.

Secured vs unsecured personal loans for bad credit

Choosing between a secured and unsecured personal loan can significantly affect both your approval chances and your interest rate when you have bad credit.

A secured loan puts an asset on the line, usually a vehicle, which reduces the lender's risk. That lower risk translates to a lower rate and higher approval odds. If you already own a car worth $10,000 or more, a secured personal loan could save you thousands in interest compared to an unsecured option at the same credit score.

How to improve your chances of approval

Check your credit report first

Request a free copy of your credit report from Equifax, Experian, and Illion before applying. Errors on credit files are more common than most people expect. Incorrect defaults, duplicate listings, or outdated information can drag your score down unfairly. Disputing and correcting errors can lift your score by 50 to 100 points in some cases.

Reduce existing debts

Pay down credit cards and close unused accounts. Lenders assess credit card limits, not balances. A $10,000 credit card with a $500 balance still counts as $10,000 of potential debt in serviceability calculations. Closing cards you do not use can immediately improve how lenders view your borrowing capacity.

Space out applications

Every loan application creates a hard enquiry on your credit file. Multiple enquiries in a short period signal financial stress to lenders and can reduce your score by 10 to 20 points per enquiry. Use a finance broker who submits to one lender at a time rather than shotgunning applications across multiple lenders.

Consider a smaller loan amount

Lenders are more likely to approve a $5,000 loan than a $20,000 loan for a bad credit applicant. A smaller amount means lower risk for the lender and lower repayments for you. If your need is under $3,000, the No Interest Loan Scheme (NILS) may be an option, see our Centrelink loans guide for eligibility details.

Add a guarantor

A guarantor with good credit who agrees to cover repayments if you default can significantly improve your approval odds and reduce your interest rate. The guarantor does not make payments unless you stop. However, they take on real financial risk, so this arrangement should only involve someone who understands the commitment.

What to watch out for

Bad credit borrowers are vulnerable to predatory lending. Some warning signs to watch for include establishment fees above 20% of the loan amount, weekly or fortnightly repayment structures that obscure the true annual cost, pressure to borrow more than you need, and contracts that include insurance products bundled in without clear disclosure. Always check the comparison rate, not just the advertised rate. The comparison rate includes most fees and charges, giving you a more accurate picture of the total cost. Subject to lender approval, terms and conditions apply.

When to wait instead of borrowing

Not every situation warrants a high-interest loan. If your need is not urgent, spending six to twelve months rebuilding your credit score before applying can save thousands. Making every payment on time, reducing your credit card limits, and avoiding new credit applications can lift a below-average score into the average range within 12 months. That shift alone could halve your interest rate on a personal loan.

This article is general information only and is not financial advice.