Everything You Need to Know About Unsecured Bad Credit Loans

By Angela Monroe - June 23, 2022

unsecured bad credit loan

Do you have bad credit and are in need of a loan? You’re not alone. So many people come to Loans For People With Bad Credit for loans and unsecured bad credit loans make up a huge proportion.

Quick facts

  • Unsecured = the loan is not tied (secured to anything, eg. a car) so if you can’t or won’t pay, nothing is repossessed
  • Bad credit = a low credit score and/or poor repayment history showing a high risk to lenders (eg. banks)
  • Who can apply for a loan? = anyone over 18 and an Australian citizen, PR holder or on an eligible visa

Unsecured bad credit loans

If you’re looking for a loan with bad credit, an unsecured loan might be a good option for a number of reasons.

Understanding what unsecured bad credit loans are can be hugely helpful when deciding on the best path for yourself.

Unfortunately, most forms of credit come with higher interest rates and fees if you have bad credit

This can lead to someone’s bad credit getting worse if they struggle to make the repayments each month. These repayments can be more than for someone with good credit because good credit loans attract lower interest rates and fees.

We want to help you to avoid these issues wherever possible and to lead you through the process of getting the right unsecured bad credit loan if you choose to take one out.

in back of suv

What is an unsecured bad credit loan?

Unsecured bad credit loans are loans that are not secured by collateral, eg. a car. They are generally smaller loans and they are borrowed over a shorter period of time than other types of loans.

For example, a personal loan to buy new furniture or medical bills.

An unsecured loan relies on future repayment of the loan and any agreed fees and charges. No equity or assets are involved in an unsecured loan; they are simply approved based on your ability to repay the loan.

This means that assessment teams scrutinise a borrower’s credit report [link] and circumstances. But that’s nothing out of the ordinary, lenders need to make sure their clients can comfortably afford a loan.

Generally, unsecured bad credit loans are seen as higher risk to the lenders (although they pose less risk to you as a borrower). This means that they can often have higher interest rates and fees than other types of loans, so it’s important to shop around and find a lender with experience working with people with bad credit.

How does having bad credit impact your loan?

When you apply for a loan, the lender has to look at your credit history and financial records, like your bank statements. Sometimes, they may ask for a mortgage statement or rental ledger too to make sure you’re not behind on payments.

They will be able to see if you have bad credit and for some lenders, this will raise alarm bells. 

Many lenders, mainly big banks, will simply refuse to lend money to people with bad credit. This can be for a few reasons:

  • The lender fears the bad publicity and expenses of chasing a borrower for money
  • A borrower is already in a tough financial position and adding more debt could make things worse
  • Assessing and deciding on conditions of a bad credit loan is too time consuming and expensive for a lender (ie. paying staff to go over an applicant’s circumstances with a fine tooth comb)
  • Accurately assessing a bad credit application is beyond the lender’s expertise

However, for lenders who specialise in bad credit loans, they’ll be able to assess your credit history and they may look into the reasons for your poor financial history. 

This means they may understand your bad credit history and be prepared to consider it more in depth and evaluate your risk accordingly.

Generally, when you have bad credit, you pose a higher risk to the lender as they have less evidence that you’re able to pay back the loan in full over the agreed term. 

what is a credit rating

How to get a better deal on your unsecured bad credit loan

Finding the right lender is really important when you’re applying for bad credit loans. This is because if you apply directly to a lender, regardless of the outcome or whether you actually take out the loan, it’s recorded on your credit report as an “enquiry”.

Enquiries knock a person’s credit score down, especially if multiple and in quick succession.

This means that someone who applies for a loan to four different banks in order to select the best rate risks getting knocked back when they actually return to the bank with the lowest rate. The reason for getting knocked back is that their credit score will have fallen as they’ve applied to the other three banks.

You can check your credit score for free here.

This is where Loans For People With Bad Credit can help. Our experts are able to match your circumstances to a lender from our large panel of bad credit lenders. This means finding a lender with the best rates and terms per your circumstances and needs without making an enquiry until you’re 100% happy to proceed.

It’s also important to consider the timing of your loan application when you apply for an unsecured bad credit loan. If you have recently moved jobs or are currently without a fixed address, you could lessen your chances of getting a good rate. 

Showing signs of stability such as regular income or a fixed address could really help you get a better deal.

Applying for an unsecured bad credit loan

It’s really important that you don’t make numerous applications for unsecured bad credit loans. It can be tempting, especially as online applications often only take a matter of minutes. 

Remember that lenders will be able to see the applications as enquiries we listed above, that you have made, and multiple attempts will raise red flags.

If you are unsure about how to apply for an unsecured bad credit loan, or what documents you’ll need to apply, speak to us for advice and we can guide you through the process. It’s worth getting your application right the first time to avoid wasting unnecessary time, money, and stress – and possible damage to your credit report.

Always make sure you’re in the best circumstances possible to apply for your unsecured bad credit loan. If you’ve just moved jobs or home or you currently don’t have the means to repay a loan, take the extra time and wait until you’re in a better situation – it’ll pay off long term.

Find out how we can help you get an unsecured bad credit loan that suits you.

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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