How to get a personal loan with an average credit score

How to get a personal loan with an average credit score

You may think that if you have an average credit score, you’re ineligible to apply for a personal loan. While that statement was mostly true when big banks were the major players in the personal loan industry, the rise of alternatives and online lenders has changed the game.

Traditionally it’s been difficult for a person with an average credit score to secure a personal loan because money lenders consider them as high-risk borrowers. But, by bearing the brunt of possible higher interest rates and shorter loan terms, it may still be possible to get a personal loan with an average credit score.

What is a credit score?

A credit score is a numerical value given to a person based on the analysis conducted on their past borrowing activity. The purpose of this score is to show lenders how reliable a person has been in the past at repaying their loans.

Your credit score is rated on a five-point scale, ranging from ‘weak’ to ‘excellent’ and is given in numbers between 0 and 1,000 or 1,200. To determine this score, credit reporting agencies compile all your personal and financial information, including your previous loans, debts and the number of applications you’ve made to secure a loan. The highest rating score you can get depends on where you get your credit report from, for example, Experian can give you a score up to 1,000, while Equifax rates up to 1,200.

If your credit score is 600 or higher, you’re considered to be in the ‘good’ or ‘excellent’ category, on the other hand, anything lower than 500 comes in the ‘weak’ category.

Will an average credit score impact the interest rate of the loan? 

Typically, lenders make use of risk-based pricing models to determine the interest rate that is applicable for a particular loan. Risk-based pricing refers to when a lender does not offer a set interest rate and instead provides an interest range for the loan. When you send your application, the lender will first assess your credit report, including your credit score, income and existing debts. Based on this information, the lender may decide to make a loan offer, with an interest rate that is within the initially proposed interest range.

So, applying for a personal loan for an average credit score will most likely impact the interest rate. However, it’s often difficult to determine how high the rate will be until you apply.

Having said that, you could still consider comparing your loan options by taking the interest range into consideration, along with other costs like application fees, ongoing fees and early repayment fees.

Which personal loans can you apply for with an average credit score?

When applying for a personal loan, it’s important to understand that the number of times your application is rejected has an impact on your credit score. To increase the chances of getting approval on your personal loan application, you could consider applying for certain personal loans that are more likely to get approved even with an average credit score.

For example, you could apply for an unsecured personal loan. An unsecured loan means that you can potentially get a loan without putting up any asset or security as collateral for the loan. While you could get approval for an unsecured personal loan with an average credit score, you will most likely have to pay higher interest rates as compared to a secure personal loan. Also, as there is no guarantor or asset, the lender can take legal action against you if you default on your payments.

Car loans could be a good option too, because even with an average credit score the value of the car secures the loan. So, if you consider taking a loan for an affordable model, the chances of your loan application getting approved are higher.

It’s important to look at your capacity to pay back any money you intend to borrow before taking out a loan. Some of these loans have high interest rates and it could be worth seeking advice before applying if you have an average credit score.

Did you find this helpful? Why not share this article?



Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy


Learn more about personal loans

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.

Can I get an easy/instant personal loan?

Some lenders are able to approve applications with little documentation and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.

Can I get a no credit check personal loan?

Personal loans with no credit checks are available and called ‘payday loans’. These are sometimes used as short-term solutions for cash-strapped Australians. They often carry higher interest rates and fees than regular personal loans, and individuals risk putting themselves into a worsened cycle of debt.