How to Get a Loan With Bad Credit
From August 2017 to 2018, Australians took out a total of $46.6 billion in personal loans. That represents a staggering 6.4% increase from the year before.
Granted, this shows that lenders shelled out more money in terms of loan amounts. But this doesn’t automatically mean they approved more loan applications.
In fact, a 2017 survey found that lenders rejected 18% of loan applications.
Business loan borrowers aren’t doing any better, as only half of them get approved.
One of the top reasons for these loan rejections is a less-than-stellar credit score.
So, does this mean Aussies can no longer get a loan with bad credit scores? No, as there are many other options, including secured loans.
Ready to learn more about how these loans work and what they entail? Then keep reading as that’s exactly what you’ll learn from this guide!
A Primer on Bad Credit Scores and Why They’re Prone to Loan Rejections
Unsure what your credit score is or what a credit score is in the first place? You’re not alone — almost three-quarters of Aussies are in the same boat. Of these folks, 8% have no idea what a credit score is, while the rest say they don’t know what their current score is.
So, what then is a credit score?
It’s a measurement of a consumer’s creditworthiness. It indicates the likelihood of borrowers paying back their loans. Lenders also use these scores to gauge how likely a borrower will pay back their debt on time.
As such, the higher the score is, the lower the risk for lenders. Higher scores make lenders more inclined to lend money.
On the other hand, the lower the score, the greater the risk for lenders. They may still approve the loan, but they’re sure to charge a much higher interest rate.
On a national scale, the average Equifax credit score is 820. Equifax, by the way, is only one of the three major Australian credit reporting bureaus. It is the biggest, however, so it’s also the most commonly used.
Going back to average scores, 820 is a “very good” Equifax score. However, there’s a huge gap between generations.
For instance, millennials are at the very bottom, with an average score of 731. This score only classifies as “good”.
Also, since these scores are only the “average”, that means that many scores are on the lower tier. Scores lower than 510 are “below average”, while those from 510 to 621 are “average”. Consumers within these ranges are at the bottom 40% of the credit-active population.
Qualifying for a Loan Despite a Bad Credit Score
If your score is average or below average, you’re likely to get a “NO” from traditional banks and lenders. But they’re not your only source of loan: there are smaller non-bank lenders you can count on.
These lenders offer secured bad credit loans. Collateral backs these loans, which reduces the risk of non-payment. Collateral can be in the form of a car, a motorcycle, a trailer, or almost any motor vehicle that’s in good condition.
Since it’s a secured loan, a borrower’s credit score has little to no effect on the outcome of the application. Secured loan lenders don’t put that much importance on a borrower’s financial past. So long as the borrower has an asset like a motor vehicle, they will qualify for a vehicle loan.
Moreover, there are loans that allow you to keep your car even if you use it as a security for the loan. This means that you don’t have to leave your vehicle with the lender. You can still drive it to school or work like you normally do.
Getting a Bigger Loan Amount with a Car Pawn Loan
If you need a bigger loan amount and you know that you have a bad credit score, consider pawning your car. So long as you have a clear title, your credit score won’t matter. You’ll qualify for a loan and get the cash you need on the same day.
With a motor vehicle pawn loan, you can get a loan of up to 60% of the value of your asset. And yes, you’ll get the money on the spot, provided that you agree to the loan terms.
Do note that a pawn loan will require you to leave your automobile with the lender. But don’t worry, as reputable lenders keep these valuables in secure facilities. Also, once you’ve paid off the loan, you can get your vehicle back.
Even Folks with No Credit Can Take Out a Loan
If you’re not part of the credit-active population, will you still qualify for a loan?
If you apply for bank or credit union personal loans, you’ll likely get rejected. But if you apply for a no credit check loan, you’ll get approved on the same day of your application. You’ll have the funds you need within 24 hours or less.
No credit check loans are exactly what they sound — they don’t require a credit check. They work much like vehicle loans and car pawn loans in that you only need to provide collateral. The only requirements you need are 2 valid photo IDs and proof of ownership.
Loans with no credit checks are ideal for people who haven’t had the chance to build their credit yet. These include people who’ve never applied for credit or a loan.
No credit check loans also have the added benefit of discretion. Reputable lenders won’t ring up your employer to do a background check on you. So long as you provide all the basic requirements, then you don’t have to worry about these checks.
Get a Loan with Bad Credit Now
There you have it, your ultimate guide on how to get a loan with bad credit. With a secured bad credit loan, you’ll get access to the funds you need, regardless of your credit standing.
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