6 Loan options for people with bad credit
From home equity loans to borrowing from family or friends, there ARE loan options for Aussies with bad credit that don't qualify for traditional financing options and we're going to run through these to help you find the most suitable option for you.
Whether you have good or bad credit, you should be able to apply for a loan to solve your financial situation and give yourself peace of mind but, you're certainly looking at a different ball game.
You will be viewed as a high-risk borrower and the requirements, procedures and rates may therefore be slightly different.
Getting to the core of your bad credit issue
Understanding the reason that you have a poor credit score and working on rectifying these issues should be your priority. To find out how to fix your bad credit, head on over to our 6 step guide to fix your bad credit and get to work on changing things around!
Improving your credit score allows you to apply standard loan types instead of loans designed for bad credit applicants. But time is not always on our side and turning your bad credit around will take a long time. So while you get to work for the long run, let’s take a look at the 6 loan options you have available to you despite your bad credit.
Loan options for Australians with bad credit
Option #1: Home Equity Loans
This is probably the most viable option for people with bad credit looking to apply for a loan. You can easily apply for a low-interest, tax-deductible loan, if you have enough equity in your property. This could be seen as a secured loan. So, should you default on your payment, you will be putting your property in jeopardy. Luckily, this is avoidable by simply holding to your repayments.
If you are serious about repaying your loan and you have a reliable income, it is probably your most inexpensive option to get a loan. Many traditional and alternative lenders will be willing to help you if you can secure the loan with your home equity.
Option #2: Credit union loans
Similarly to banks, credit unions are owned by its members who bear something in common. Whether it be industry-related or the same geographical area for example, it is another solution should you wish to apply for a loan with bad credit. Usually, credit unions are non-profit organisations that offer lower fees to its members. This is an option you can look into before you look elsewhere to apply for a loan.
Option #3: Peer-to-peer loans
Here is another viable solution for individuals who wish to apply for a loan with bad credit. It is a form of lending that has been around since about 2005 and seems to be growing in popularity.
You will find peer to peer loans on an online platform, from which you borrow from an individual as oppose to an institution. The process allows you to pay low-interest rates and the investors earn high-interest rates, making it viable for both parties.
Simply find a peer to peer lending network that suits your needs as there are many online peer to peer lenders available. You will be required to list your loan and the amount you wish to borrow including the reason you wish to loan the amount indicated.
Investors then review these loan listings and choose who they wish to loan to. Investors screen the applicants that they are considering, which do include credit checks. However, an investor might be more lenient and grant you the loan, regardless of your bad credit.
Option #4: Co-signer
If you have a family member or friend with good credit, they might be willing to co-sign for you, which is another nifty solution to your financial issue. If someone is fully aware of your situation and believes you will repay the loan, they might be more than willing to co-sign for you.
You should always keep in mind that should you default on payments, the lender is entitled to claim the outstanding fees from the person who co-signed. To prevent tarnished relationships, you should avoid defaulting on the repayment at all costs.
The payment history and status will reflect on the both parties’ credit record. All these details should be disclosed to the person who is prepared to co-sign for you.
Option #5: Loans from bad credit lenders
There are a wide range of bad credit loans available on the market from alternative and online credit providers. These loans may not offer the competitive rates that banks, credit unions and peer-to-peer lenders do, but they are typically willing to take on more risk than such traditional lenders.
These loans can be both secured and unsecured, depending on the lender as well as the loan amount you're looking to obtain. Apart from the higher cost of borrowing with bad credit lenders
Option #6: Loans from a family member or friend
This should perhaps be one of your first option if you are in need of money but have bad credit. Lenders take a risk by loaning money to high-risk individuals and one can therefore understand that they often reject these types of applications.
However, a friend or family member might still be very keen to help you out of your financial difficulty. This might also be your most cost-effective option as often family members will charge little or no interest on loans. You can always draw-up a written agreement to ensure both parties are satisfied with the arrangement made.
Our top tips for bad credit loan approval
- Always obtain a copy of your credit report and find out the cause or causes behind your poor credit rating.
- Make improving your credit a priority.
- Start your bad credit loan search with credit unions, P2P lenders and alternative options like borrowing from friends and family to try and secure competitive rates.
- Always borrow only what you need only.
- If you can offer security for you loan, do so to reduce your loan cost and increase your chances of approval.
- If your loan application is denied, do not try to apply for another loan, this will worsen your credit score even more.
- Using a broker may help you find bad credit loan options and secure approval without making multiple loan applications.
It should be a relief to know that no matter what your current credit status is that there is an option for you to solve your financial situations. Loan lenders are there to assist you and will always try to do so.
If none of these options suit you, you can always opt for improving your credit score and then applying for a loan at a bank or alternative lender. A quick online search will give you a host of online loan lenders ready to assist you.
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