Personal Loan With Bad Credit Australia — Your Real Options in 2026

Quick Answer: You can get a personal loan with bad credit in Australia through specialist non-bank lenders — but expect interest rates of 14–48% p.a. compared to 6–12% for borrowers with clean credit. The smarter move, if you have a removable default or error on your file, is to get it removed first. A clean credit file transforms your borrowing costs and opens up mainstream lenders that bad credit borrowers can't access.

A personal loan with bad credit in Australia is not impossible. But it is expensive — often brutally so. And the way most people approach it — applying to multiple lenders hoping one says yes — makes their situation significantly worse with every declined application.

This guide tells you exactly what your options are, what the real cost difference looks like in dollar terms, and how to approach this strategically rather than desperately.

Why Bad Credit Makes Personal Loans Harder to Get

Personal loans are unsecured — meaning there's no asset like a car or house backing the debt. If you default, the lender has very limited recourse. That risk is priced into the interest rate, and for borrowers with a history of credit issues, lenders charge a premium to compensate.

Here's what lenders are specifically checking when they assess your personal loan application:

Your credit file — defaults, court judgements, multiple enquiries, and repayment history under Comprehensive Credit Reporting (CCR). A single default triggers automatic decline at most mainstream lenders. Multiple defaults make even specialist lender approval difficult.

Your income and employment stability — personal loans are assessed heavily on your ability to service the debt. Stable employment for 6–12 months significantly helps your case even with bad credit.

Your current debt-to-income ratio — how much of your monthly income is already committed to existing debts. Lenders apply serviceability calculations and will decline if your existing commitments are too high relative to income.

Your banking behaviour — many lenders now use open banking to analyse your transaction history directly. Gambling transactions, regular overdrafts, or erratic spending patterns can cause declines even when the credit file looks acceptable.

The purpose of the loan — some purposes are viewed more favourably than others. Home renovation or medical expenses, medical expenses, and home repairs are generally viewed more positively than lifestyle expenses or gambling-related debts.

Your Real Options for a Personal Loan With Bad Credit

Option 1 — Specialist Non-Bank Lenders

Lenders like Pepper Money, Liberty Financial, Wisr, MoneyMe, and Jacaranda Finance specifically lend to borrowers with impaired credit. They assess applications more holistically than traditional banks — looking at income, spending patterns, and the nature of the credit issue rather than applying a blanket decline for any default.

The trade-off is the rate. Specialist personal loan rates for bad credit borrowers typically range from 14% to 35% p.a., with some fringe lenders charging up to 48% p.a. for high-risk applications. These are not payday loans — they're legitimate credit products — but the cost is significant.

Option 2 — Credit Unions and Mutual Banks

Credit unions and mutual banks sometimes take a more flexible approach to lending than the big four banks, particularly for existing members. If you have a longstanding relationship with a credit union and can demonstrate improved financial behaviour, it's worth having a direct conversation before applying formally. Some will conduct a manual review rather than relying solely on automated credit scoring.

Option 3 — Secured Personal Loan

If you own a vehicle or other asset, securing the personal loan against that asset significantly expands your options and lowers your rate. The lender takes a security interest in the asset — if you default, they can repossess it. This arrangement reduces lender risk enough that some mainstream lenders will consider bad credit borrowers.

Option 4 — Guarantor Personal Loan

A guarantor with a strong credit history co-signs your loan, agreeing to be responsible for the debt if you can't pay. This dramatically expands your lender options and can bring rates down significantly. The guarantor needs to fully understand the financial and personal risk — if you miss repayments, the lender will pursue them directly.

Option 5 — No Interest Loan Scheme (NILS)

If you need a small loan (up to $2,000) for essential goods or services — a fridge, medical expenses, car repairs — the government-supported No Interest Loan Scheme provides zero-interest loans to eligible low-income Australians. No credit check involved. Available through community organisations nationwide. Visit the NILS website or call 13 64 57.

Option 6 — Fix Your Credit File First

If there's an inaccurate or improperly listed default or other negative item on your credit file, removing it before applying converts you from a bad credit borrower to a standard borrower overnight. The interest rate difference — and the lenders available to you — changes completely.

The Real Cost of Bad Credit on a Personal Loan

Here's what bad credit actually costs you on a $15,000 personal loan over 3 years:

The difference between excellent and bad credit on this single loan is $7,668 in extra interest. Over a lifetime of borrowing — multiple personal loans, car loans, and eventually a mortgage — the cumulative cost of bad credit can easily reach six figures.

Real Case Study: Daniel Avoided $8,200 in Extra Interest

Can I get a personal loan with bad credit to improve my situation? Yes — but your options depend on what's on your file. A free ACS assessment identifies whether any negative entries are removable, which can dramatically improve the rate you're offered.

He'd already been quoted 27.9% p.a. by a specialist lender when his mortgage broker suggested he speak to Australian Credit Solutions first.

Our team reviewed his credit file and found that the gym had never issued the required written notice before listing the default — a clear breach of the Privacy Act 1988 and Credit Reporting Code.

We lodged a formal dispute on Daniel's behalf.

Result: Default removed in 31 days. Daniel's Experian score moved from 521 to 698. He reapplied and was approved at 9.9% p.a. through a mainstream bank — saving approximately $8,200 over the loan term compared to the specialist lender rate.

What to Do Before Applying for a Personal Loan With Bad Credit

Approaching this strategically rather than desperately makes an enormous difference to both your approval chances and the rate you're offered.

1. Check all three credit bureaus. Know exactly what's on your file before any lender sees it. Check Equifax, Experian, and Illion. Full guide here →

2. Get a free assessment on any defaults or errors. If there's anything inaccurate, incorrectly listed, or in breach of the Privacy Act on your file, find out before you accept a high rate. Free ACS assessment →

3. Stop applying until you have a strategy. Every declined application adds a hard enquiry. Three rejections in a month flags you as high risk to every subsequent lender. One well-targeted application beats five desperate ones.

4. Use a specialist broker if you need to borrow now. A broker who works with non-conforming lenders can match your profile to the right lender on the first application, avoiding the enquiry accumulation problem.

5. Demonstrate financial stability. Three to six months of clean banking behaviour — regular income deposits, no overdrafts, no gambling transactions — can meaningfully improve how specialist lenders assess your application even with bad credit.

6. Borrow only what you need. Smaller loan amounts are easier to get approved with bad credit. If your goal is credit file repair, confirm the exact amount needed rather than borrowing a round number with buffer.

Personal Loans vs Payday Loans — Know the Difference

When you search for bad credit personal loans, you'll encounter payday lenders mixed in with legitimate personal loan providers. These are very different products.

Personal loans from ASIC-licensed lenders: $2,000–$50,000, terms of 1–7 years, interest rates 7–48% p.a., regulated under the National Consumer Credit Protection Act 2009.

Payday loans (small amount credit contracts): typically under $2,000, terms under 12 months, fees capped under ASIC regulations but equivalent annual rates can be extremely high. Use only as an absolute last resort for short-term cash flow emergencies — not for credit file repair or larger expenses.

ASIC's MoneySmart website (moneysmart.gov.au) has a loan comparison tool and comprehensive guidance on understanding credit products.

How Long Does Bad Credit Last in Australia?

Most negative listings on an Australian credit file have a fixed retention period:

The listing clock starts from when the item was recorded — not when the debt occurred or when it was paid. Paying a default doesn't remove it or restart the clock. It changes the status from "outstanding" to "paid" — which is better for human review but still shows a default was listed.

The only way to remove a negative listing before its retention period expires is through a successful dispute — either directly with the credit bureau or through an ASIC-licensed credit repair specialist like Australian Credit Solutions.

Frequently Asked Questions

Can I get a personal loan with bad credit in Australia? Yes — specialist lenders like Pepper Money, Liberty, Wisr, and others lend to bad credit borrowers. However, interest rates are typically 14–36% p.a. compared to 7–12% for clean credit borrowers. If you have a removable default, getting it removed first can save thousands.

What is the easiest personal loan to get with bad credit in Australia? Secured personal loans (backed by an asset) and guarantor loans are generally the easiest to access with bad credit. Small amount credit contracts (payday-style loans) have high approval rates but very high costs — use only as a last resort. The No Interest Loan Scheme (NILS) offers zero-interest loans up to $2,000 for eligible Australians without a credit check.

Will a personal loan application hurt my credit score? Each application creates a hard enquiry that slightly lowers your score and is visible to future lenders. Multiple applications in quick succession significantly damages your credit profile. Apply to one lender at a time, or use a broker who can pre-assess your eligibility without a hard enquiry first.

Can I get a personal loan with bad credit to improve my situation? Yes — but your options depend on what's on your file. A free ACS assessment identifies whether any negative entries are removable, which can dramatically improve the rate you're offered.

How do I remove a default to get a better personal loan rate? If the default was listed incorrectly or in breach of the Privacy Act 1988 — for example, the creditor failed to issue proper notices before listing — it can be removed through a formal dispute. Australian Credit Solutions assesses your case for free and operates on a No Win No Fee basis. Most removals take 30–90 days.

What credit score do I need for a personal loan in Australia? Mainstream banks typically prefer an Equifax score of 600+, with better rates for 700+. Specialist lenders will consider applications with scores under 600, including those with defaults. But the score alone is less important than what's specifically on your file — a default causes more damage than a low score without one.

Can I get a personal loan while in a Part IX Debt Agreement? In most cases, no — mainstream lenders will decline, and specialist lenders are extremely cautious. Taking on new credit while in a debt agreement also has legal implications under your agreement terms. Speak to your debt agreement administrator before applying for any new credit.

Don't Accept a High Rate Until You've Done This First

If there's a default on your credit file, find out if it can be removed before you sign up to years of high-interest repayments. ACS assessments are completely free and take 60 seconds.

Australian Credit Solutions — ASIC-licensed, lawyer-led, No Win No Fee. 98% success rate on accepted cases. Over 5,000 Australians helped since 2014.

Get My Free Assessment → 📞 0489 265 737 🛡️ ASIC Licensed ACL 532003 | ⭐ 4.9/5 from 976+ Reviews | 🏆 Award Winner 2022–2024

Australian Credit Solutions Pty Ltd holds Australian Credit Licence ACL 532003. Credit repair services are subject to individual assessment. Results may vary. This article provides general information only and does not constitute financial or legal advice.

Related reading: Credit Repair for Personal Loans → | Bad Credit Car Loan Australia → | Default Removal Services →