Bad credit personal loans – guaranteed approval explained
Financing can be difficult to obtain if you’re in a tough position with your credit score. However, there are ways around a bad credit score when it comes to applying for a personal loan, which can open doors for you that may have otherwise been locked shut. However, is it possible to be guaranteed approval for your personal loan regardless of your credit score and borrowing history? Find out whether that’s the case, as well as any other bad credit financing options, in this guide.
Can I receive a bad credit personal loan with guaranteed approval?
The short answer is no – there are no reputable lenders in Australia who can guarantee approval of your bad credit personal loan application. This is because it’s against the law for any lender to grant loan funds and conditions to a person who they aren’t confident will be able to repay the entirety of the sum. This is in line with responsible lending obligations as outlined in the National Consumer Credit Protection Act 2009, which was introduced in the wake of the Global Financial Crisis to prevent lenders agreeing to deals that exploit vulnerable customers.
As such, it is important to bear in mind that you cannot and will not be guaranteed approval for your personal loan application by any lender, and those that do offer it are in breach of Federal laws. While this is the case, don’t think that this discounts you from getting any financing at all: there are still several avenues that prospective borrowers can take for their financing needs.
Can I still get a bad credit personal loan if I can’t get guaranteed approval?
Yes – although having bad credit may dash your chances of approval for a traditional personal loan, you’ll still be squarely in the frame for a bad credit personal loan. Bad credit personal loans more or less function in the same way as any other personal loan except with higher interest rates and fees. This is because lending to a borrower with bad credit is seen as a riskier proposition from the perspective of your lender compared to a customer with good credit. These are generally provided by smaller specialist lenders whose criteria tend to be more lenient than those of the big banks.
When processing bad credit personal loan applications, lenders will look at other aspects of your financial profile. Your credit score is the key indicator for traditional personal loans but, while it still plays a role in your application, bad credit lenders are more likely to also consider things such as your recent financial history and the reasons why your credit score is where it is now. This is crucial for borrowers who may have defaulted on past debts due to unforeseen circumstances out of their control, such as medical expenses or being laid off.
As mentioned, interest rates are far harsher with bad credit personal loans. While you may experience interest rate hikes of 5-10% compared to good credit loans, it can often be even more. There are some types of personal loan in the market which could potentially cost you an interest rate of 25-30% overall, which is a significant added cost. All of this comes down to what’s known as risk-based pricing, meaning a lender will set your interest rate according to the risk they perceive you to be at for defaulting on your loan. As such, it’s important to show as thoroughly as possible that you’re a safe prospect for your lender to cut down on your overall interest outlay.
Are there any alternatives to bad credit personal loans that have guaranteed approval?
No – there are still other options that you may wish to pursue if you don’t feel that a bad credit personal loan is right for you, but none with guaranteed approval. One such avenue is a bad credit small personal loan, which is essentially a personal loan limited to amounts between $300 and $5,000. This can be paid over a term as long as two years or as short as three months. These are more suitable for borrowers who are only looking for a small loan and want to pay it off quickly. Because these have significantly higher interest rates compared to their personal loan equivalents, they’re often not a suitable long-term fix.
Another option for borrowers is a guarantor personal loan. In this case, a borrower will enlist a close relation such as a parent or sibling to act as security for their loan should they become unable to service it. This means that, if you default, your guarantor will become responsible for the payment of your personal loan until its conclusion. While this can help you gain access to greater funds and lower your interest rates, it’s important to address the inherent risk of placing such a weighty financial commitment on someone else. This can potentially lead to disagreements and place strain on your relationship, which wouldn’t be the case if you were paying the loan on your own.
The pros and cons of bad credit personal loans
Allow you to get approved
For many bad credit borrowers, personal loans are one of the only viable options available to them when it comes to their financing needs.
Flexible repayment options
With repayments between one and seven years, you can have a say in how much you’ll be paying every week, fortnight or month
No security required
Unsecured bad credit personal loans allow you to forego placing one of your valuable assets as security in case you can’t fulfil your repayment commitments
Higher interest rates and fees
Because of the increased perceived risk to your lender, the amount you’ll have to pay in interest and fees by the end of your loan is likely to be significant
May not be approved for as much
If you have a patchy financial history, you may not be approved for as great an amount as you need with a bad credit personal loan depending on your circumstances
More complex application process
Because there are more variables to consider than just your credit score, you may find that the financing process takes longer to complete with some lenders