Can You Get a Secured Loan With a Default on Your Credit File?

Quick Answer: Yes, you can apply for a secured personal loan with a default on your credit file in Australia — and some lenders will approve it, because the asset you offer as collateral reduces their risk even when your credit history isn't clean. Approval depends on the default's type, age, and whether it's been paid, plus the quality of your security. If a default was listed incorrectly or without the process required by the Privacy Act 1988, Australian Credit Solutions can investigate and dispute it, which may significantly improve your loan options once it's resolved.

A default on your credit file narrows your options for personal finance — but it doesn't close them all. The meaningful difference with a secured loan is that you're offering an asset as a safety net, and lenders factor that into their risk assessment alongside your credit history. Here's how that actually works in practice.

What Is a Secured Personal Loan in Australia?

A secured personal loan is one where you offer an asset as collateral — meaning if you stop making repayments, the lender has a legal right to take that asset to recover the outstanding amount. In Australia, common assets used as security include a motor vehicle, motorbike, boat, caravan, property equity, or a cash-backed term deposit. Because the lender has a tangible way to recover its money, the risk profile of the loan is lower than an unsecured personal loan — and that difference matters when your credit file shows a default.

The Privacy Act 1988 (Cth), Part IIIA, governs credit reporting in Australia, including how long defaults stay on your file (five years from the date listed) and what process a creditor must follow before listing one.

Does a Default Automatically Rule You Out for a Secured Loan?

No — a default on your credit file does not automatically disqualify you from a secured personal loan in Australia. Many non-bank and specialist lenders will assess secured applications from borrowers with defaults, particularly where the asset value comfortably covers the loan amount and the default is not recent or related to a prior mortgage.

What lenders look at is a combination of factors: the type of default, how old it is, whether it has been paid or remains outstanding, the loan-to-value ratio of the security, and your current income and serviceability. A strong security position — for example, a $30,000 car securing a $15,000 loan — meaningfully offsets a credit file that isn't perfect.

The OAIC (Office of the Australian Information Commissioner) publishes guidance confirming that credit information must be accurate and may not function as a blanket disqualifier — it forms part of a broader assessment, not an automatic gate.

How Lenders Assess a Secured Application When There Is a Default

When a lender sees a default alongside a secured loan application, they run a different calculation than for an unsecured loan. The focus shifts from "will this person repay from income alone?" to "what is the risk-adjusted outcome once the security is factored in?"

The variables lenders typically examine:

• Default type and amount — a missed $150 phone bill registers very differently from a $20,000 car finance default. The creditor category matters a great deal.
• Default age — a default listed more than two years ago is viewed more leniently than one from the past six months.
• Paid vs unpaid — a paid default shows the debt was eventually settled. An unpaid default with no resolution is a more significant red flag.
• Current serviceability — you must demonstrate you can meet the new repayments from current income, regardless of past credit history.
• Asset quality and LVR — lenders want security they can actually realise. A low loan-to-value ratio gives them that confidence even when your file is less than perfect.

MoneySmart, ASIC's consumer finance website, notes that non-bank and specialist lenders often have more flexible credit assessment criteria than major banks — a useful distinction when you're working out who to approach.

Which Assets Work as Security for a Personal Loan in Australia?

Not all assets are assessed equally. Here is how common types of personal security are typically received by Australian lenders:

A cash-secured loan — where your own term deposit backs the loan — is the strongest form of security, and some credit unions and mutual banks will consider it even when there is a default on your file, because their downside is fully covered.

What Types of Defaults Concern Lenders Most?

Default type is one of the most significant variables in how a lender reads a secured application. Australian lenders typically assess defaults in order of relevance to the new loan:

Mortgage and home loan defaults carry the most weight — they show a borrower stopped repaying a secured debt, which is directly analogous to what the new lender is being asked to extend. A mortgage default on your file will substantially narrow your secured loan options.

Finance company defaults (car loans, personal loans) are the next most closely scrutinised, for the same reason — they demonstrate a history of not repaying a loan of similar type.

Utility and telco defaults (electricity, phone, internet, streaming services) are generally viewed more leniently by specialist lenders, especially where they are paid or more than 12 months old.

Small credit defaults under $500 — including missed BNPL payments — tend to have the least impact individually, though they still reduce your overall credit score.

Under section 21D of the Privacy Act 1988, a creditor must issue a written notice to your last known address before listing a default, and the debt must be at least 60 days overdue. If any of those procedural steps were missed — or if the amount or address recorded is wrong — the listing may be invalid and challengeable.

How Removing a Default Changes Your Secured Loan Options

A default on your credit file doesn't only affect whether you're approved — it affects the interest rate you're offered, the maximum loan amount available, and the number of lenders willing to look at you. Moving out of the "credit impaired" category into standard credit assessment can make a significant difference to the total cost of borrowing.

If a default was listed incorrectly — wrong amount, wrong address, no section 21D notice, or for a debt that was not yours — Australian Credit Solutions can investigate and dispute it under the Privacy Act 1988. The credit reporting body has 30 days to investigate from when a dispute is lodged. Where a breach is confirmed, the listing must be corrected or removed.

Before applying for a secured loan, it is worth getting a free copy of your credit file from each bureau — Equifax, Experian, and illion all provide one free copy per year under the Privacy Act 1988. Check what is listed, confirm the details are accurate, and dispute anything that looks wrong.

You can do this yourself through the credit reporting body's dispute portal, or you can engage our default removal team to investigate whether a procedural breach occurred and manage the process for you.

📊 Try the numbers yourself: Use our free Personal Loan Calculator to see what your repayments look like at different interest rates — and understand concretely how a lower mainstream rate changes the cost once a default is removed.

Steps to Take Before Applying for a Secured Loan

If you have a default on your file and are considering a secured personal loan, these steps are worth working through first:

1. Get all three credit files. Defaults sometimes appear on one bureau and not others. You need the full picture before you apply. All three bureaus — Equifax, Experian, and illion — are required to provide a free copy under the Privacy Act 1988.

2. Review each default's details. Check the creditor, the date listed, the amount, and the address used for the section 21D notice. Errors in any of these can give grounds for a dispute.

3. Dispute any listing that looks incorrect. Start with the creditor or the credit reporting body directly. The OAIC recommends this route first. If the DIY process stalls, Australian Credit Solutions (ACL 532003) can investigate and escalate the dispute under the Privacy Act 1988.

4. Approach the right lenders. Major banks are the least flexible for applicants with defaults. Credit unions, mutual banks, and specialist non-bank lenders are a better starting point for a secured application where credit history is impaired.

5. Keep applications targeted. Each credit application adds an enquiry to your file, and too many enquiries in a short window is itself a concern for lenders. Research eligibility criteria before applying, and approach lenders most likely to match your profile.

If you are carrying debt that feels unmanageable alongside this, the National Debt Helpline (1800 007 007) offers free, independent financial counselling — a sensible first call before taking on further credit obligations.

Frequently Asked Questions

Can you get a secured loan with a default on your credit file in Australia? Yes — you can apply for a secured personal loan with a default on your credit file in Australia, and some lenders will approve it. Because you are offering an asset as collateral, the lender's risk is reduced even when your credit history is impaired. The default type, age, whether it is paid, and the quality of the security you offer all affect the outcome.

How long does a default stay on a credit file in Australia? Under the Privacy Act 1988 (Cth), a default remains on your Australian credit file for five years from the date it was listed. A serious credit infringement — sometimes called a clearout default — stays for seven years. Once the retention period expires, the credit reporting body removes it automatically.

What assets can be used as security for a personal loan in Australia? Common assets accepted as security for a personal loan in Australia include motor vehicles, motorcycles, boats, caravans, property equity, and term deposits. A cash-secured loan — where your own savings fully back the loan — is the strongest form of security and is accepted by some lenders even when there is a default on file.

Does a paid default look better than an unpaid one to lenders? Yes — Australian lenders view a paid default more favourably than an unpaid one. A paid default shows the debt was eventually settled; an unpaid default signals an unresolved financial obligation. On a secured loan application, a paid default combined with strong collateral improves your chances of approval meaningfully.

Can you dispute a default before applying for a secured loan? Yes — you can dispute a default directly with the relevant credit reporting body (Equifax, Experian, or illion) under the Privacy Act 1988. If the listing was procedurally incorrect — wrong amount, wrong address, missing section 21D notice — the credit reporting body has 30 days to investigate. Australian Credit Solutions (ACL 532003) can investigate and manage this process on your behalf.

Does a default affect the interest rate on a secured personal loan? Yes — a default on your credit file typically results in a higher interest rate even on a secured personal loan, because lenders price credit risk alongside security. Once a default is removed, you become eligible for mainstream lender rates, which are generally substantially lower than specialist rates for credit-impaired borrowers.

What process must a creditor follow before listing a default in Australia? Under section 21D of the Privacy Act 1988, a creditor must issue a written notice to your last known address before listing a default. The debt must be at least 60 days overdue, the amount recorded must be accurate, and the notice must be served correctly. A breach of any of these requirements can make the listing challengeable and potentially removable.

Can a non-bank lender approve a secured loan with a default on my file? Yes — non-bank and specialist lenders in Australia generally apply more flexible credit criteria than major banks, as MoneySmart (ASIC's consumer finance website) notes. A secured application backed by a quality asset, where the default is paid and more than 12 months old, is more likely to be considered by a specialist lender than by one of the major banks.

What is the difference between a secured and unsecured loan for someone with a default? With a secured personal loan, you offer collateral that reduces the lender's risk — more lenders will consider your application despite a default, and you may qualify for a lower rate. With an unsecured personal loan, the lender relies solely on credit history and income, making a default a much higher barrier to approval. For personal loans with a default still on file, the secured route is generally more accessible.

When should I consider credit repair before applying for a secured loan? Dispute defaults before applying if any listing looks incorrect — wrong amount, wrong creditor, procedural errors, or a debt you do not recognise. A successfully removed default improves your credit score, expands your lender options, and reduces the interest rate you will be offered. Australian Credit Solutions (ACL 532003) reviews your file and disputes listings that breach the Privacy Act 1988 at no upfront cost.

Your Next Step

If you have a default on your credit file and want to know whether it was listed correctly — or what it would take to improve your position before applying for a secured loan — a free credit assessment is the most useful place to start. Australian Credit Solutions reviews your file, identifies defaults that may be challengeable under the Privacy Act 1988, and explains exactly what is possible before any cost is involved.

For context on removing defaults from your file entirely, see our guide on how to remove a default from your credit file.

If you are approaching this as someone with bad credit seeking a personal loan, the secured route is worth exploring — but understanding what is on your file first puts you in the strongest position.

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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 legal or financial advice.

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