A Borrower’s Guide to Unsecured Bad Credit Personal Loans

By Angela Monroe - September 10, 2019

Bad credit hurts your chances of getting approved for a loan, but it doesn’t completely shut down your chances. As a matter of fact, bad credit personal loans are a popular choice among many borrowers who need immediate financing but do not qualify for many standard loans because of damaged credit history and low credit score.

What Are Bad Credit Personal Loans?

Bad credit personal loans are personal financing designed for borrowers who have poor credit scores. These borrowers’ credit profiles are usually laden with a history of late debt payments, loan defaults and even repossession or bankruptcy. The past records put them in a bad light, suggesting poor credit management and financial irresponsibility. As a result, they get turned down by many lenders, especially banks and large financing institutions, even if they have made conscious efforts to change their habits.

If you are one of those whose borrowing power has been weakened by a bad credit rating, bad credit personal loans are usually your only chance to get financing for various personal expenses. These include:

  • Major purchases like furniture and appliances
  • Home renovation projects
  • Vacation trips and holiday tours
  • Special celebrations, like weddings and birthdays
  • Medical expenses
  • Debt consolidation
  • Education

You can even use a bad credit personal loan to purchase a car, boat or business equipment or even finance a business project.

Secured or Unsecured?

Secured Personal Loans

These types of personal financing require an asset, like a vehicle or business equipment to secure the loan. The asset becomes collateral for the loan, which means that it can be seized and sold by the lender if you cannot fulfil your loan obligation within the agreed repayment period. Bad credit personal loans that are secured with collateral have a lower interest rate than their unsecured counterparts. By putting your property on the line, you have a more compelling reason to repay the loan. Thus, lenders see you as a low-risk borrower.

Unsecured Personal Loans

These financing types do not need any collateral although you can still get sued by your lender if you refuse to pay the debt. Because you have no asset on the line, you have a bigger tendency to run from your loan obligation. To compensate for the higher risk of lending you money, the lender charges you with a higher interest rate and less favourable terms.


  1. Easy Application. Lenders that offer unsecured bad credit personal loans are mostly fintechs that generally accept and process applications online. These companies have easy-to-fill-out online application forms and approval systems that expedite approval.
  2. Fast Access to Funds. The fast application process translates into fast approval decision that allows you to receive the funds straight away. Generally, you can get the funds on the next business day that you get approved for the loan.
  3. Flexible Repayment Terms. Most unsecured bad credit personal financing lenders will usually structure your repayments according to your pay schedule. Depending on the lender, you will usually have the repayment amount direct debited from your account on the repayment date – no need to remember to send your funds across.
  4. Short-Term. Generally, unsecured bad credit personal loans are available for a limited amount of around $5,000 to $50,000 that’s payable within a short period of around 6 months to a year and a half. 


Lenders that offer unsecured bad credit loans put more value on your current financial situation than your poor credit score and the negative listings on your credit report. Typically, the eligibility requirements include:

  1. Legal age
  2. Australian citizenship or permanent residency status
  3. Tax returns
  4. Bank statements
  5. Payslips
  6. Supporting documents for income-generating endeavours

Lenders need to know that you have the financial capacity to repay your loan even though you are temporarily short on money. This can be shown by your latest bank statements along with other financial documents:

  1. Latest income tax returns and payslips, if you are employed 
  2. A letter confirming the status and nature of your pension, if you’re a pensioner
  3. A copy of your self-employment or business income tax, if you’re self-employed or running a small business 

Investment properties also increase your borrowing power.  If you own a real estate property that you’re currently renting out, for instance, simply provide the documents that prove your ownership of the property and how much you are earning from them. Generally, lenders consider 80% of your gross rental income along with your other income sources to calculate your borrowing power. 

Before taking out an unsecured bad credit personal financing…

The combination of having bad credit and not providing any collateral makes unsecured bad credit personal loans less friendly to borrowers. However, if you do not want or do not have any property to pledge as collateral, these financing may be your only way to get the much-needed money for an important expense.

The Interest Rate

Bad credit personal loans have a high interest rate, especially if unsecured. The bigger the amount you loan, the higher the interest charge you’ll likely pay. As a bad credit borrower, your record poses a higher risk for the lender even if you’ve made significant improvements on your credit management skills. 

To get the most reasonable rate, get pre-approval from several lenders if you can. Do it within two weeks, however, to avoid the negative impact of hard inquiries on your credit report.

The Fees Involved

Aside from the interest charge, there are also other fees that come with your bad credit loan. These include:

  1. Loan Application Fee or Origination Fee. This is a one-time payment for processing the loan application, usually up-front and nonrefundable. This fee varies by lenders and many do not charge it at all.
  2. Ongoing Monthly Fee or Account Maintenance Fee. The money the lender charges you to keep your account open. It can quickly add up over the life of the loan.
  3. Late Payment Fee. Most lenders charge this fee if you don’t make a payment by the repayment due date.
  4. Breakcost Fee. Some lenders require payment if you pay off the loan early. 

The Lender

Not all lenders that offer unsecured bad credit personal loans are the same. While some intend on helping you get financing despite your bad credit record, many are loan sharks who prey on your vulnerability. 

These predators offer loan terms without assessing your financial capacity for repayment because their goal is to charge you with impossibly high interest rates and fees. Even if you don’t provide any collateral for the loan, the large sum of money that you have to produce to satisfy your loan obligation can put more damage to your financial situation. If you cannot make the repayments on the agreed term, you would end up in a debt trap and your already bad credit record would worsen.

Before taking out a loan from a bad credit lender, check their reputation, all the terms and conditions and compare your options. Do not miss out the online customer reviews so you will have an idea of how your potential lender deals with their clients.


Loans For People With Bad Credit has over 35 years of experience in helping Aussies who have had a bad credit history to secure financing. We team up with over 30 different lending partners to get you the right loan you need. Call 1300 769 384 to speak with a consultant or get a Bad Credit Loan Pre-Approval now.


See also:

Common Signs of a Bad Credit Loan Scam

How to Consolidate Your Debt if You Have Bad Credit

5 Habits that Ruin Your Credit Score

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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