Sadly, having bad credit can impact your borrowing ability. Many mainstream or traditional lenders, like banks, will outright reject any loan application with bad credit which can be stressful. Luckily, there is a whole industry of lenders who specialise in bad credit loans.
But the question remains. How much can you borrow with bad credit? The simple answer is that you are often capped within a certain bracket compared to a traditional loan.
As always, though, things are a little more complicated than that. Regardless of whether you are going through a traditional lender or a bad credit lender, it’s important to do your research and make sure you know what you’re getting into.
Your credit history is a record of your ability to manage debt, and facility enquiries that you have made. It considers information like your history of repaying liabilities on time, the number of credit applications you’ve made, your habits with debt and more.
Often, your credit history is calculated and turned into a number between 0 (poor) and 1200 (excellent). This is your credit score. Lenders use your credit score to determine the risk they take in lending money. Someone with a high credit score is a safer bet than someone with a lower credit score.
Different lenders will look at different credit scores and make a judgement based on their credit behaviour. In general, if your score is below 500, then your credit is below average. Lower than 400 is deemed as bad.
It’s worth noting that most marks against your credit score only last for two years and the more significant ones last five. So remember that you can change your credit score with some dedicated effort.
Bad credit scores present a risk for lenders. It’s a sign that if they lend money, they may not get it back.
Many traditional lenders, like banks and building societies, won’t lend to anyone under a certain credit score. That score can vary but anything below 500 can be the cut-off.
Even if you’re actively improving your score, until you get it above 500, the chances of receiving a loan from these lenders won’t change until your credit score reflects it.
With bad credit, it can seem impossible to get the money you need for a second chance. Luckily, there are lots of services that specialise in bad credit loans. These lenders focus more on your current situation rather than your past. Your current employment and finances are more important to them and they work with you to make sure that you can get the money you need.
It’s important to do your research when looking for a loan. Though there are many bad credit lenders in Australia out there, they offset their risk with higher interest rates and fees. Make sure to read the fine print on any loan you take as some lenders will charge high penalties for late repayments and others will charge a steep fee for early repayments.
How much can you really get with bad credit? That depends on what you need it for, and your profile eligibility. Just like traditional lenders, bad credit lenders have loans for a variety of things. Everything from car loans to boat loans can be financed with bad credit.
Many lenders will look at your situation when deciding how much to lend. For instance, some bad credit loans will finance up to 95% of your vehicle if you have never defaulted but only 90% if you have.
With bad credit, you can sometimes still borrow the same amount you can with good credit. The trade-off is in higher interest rates and fees. For small, short-term loans you can get anywhere from $2,000 – $7,000, the average bad credit car loan is $32,000 and bad credit home loans can go up to $700,000 depending on your property.
Though you can get bad credit loans for almost anything you need, some things will impact the amount they will lend. These include:
Your bad credit lender will work with you and go through your employment, credit history, current debts and finances to understand what position you’re in to pay them back.
Steady employment, having no other debts and your spending habits can all impact how much you can borrow for the better.
Lenders are likely to approve larger loans if you have a secured loan. When you agree to a secured loan, you choose assets to put up as collateral. These assets could be your car, house or other things that you own.
In the rare case that you haven’t made the agreed repayments or if you’ve defaulted on your loans, these assets can be taken by the lender instead of payment. Many car or home loans will use the purchase itself as collateral. This gives the lender a guarantee on the off chance that you don’t meet the agreement or default on the loan.
An unsecured loan uses no collateral and so the lender has no guarantee of getting the money they lent back.
Secured loans often have higher maximum loans than unsecured loans but can carry more risk if you don’t make your repayments.
Not every lender or loan will require a deposit but some larger loans like a bad credit home loan will require a deposit to be made. As a general rule, the larger the lend, the more you must prove to lenders you will be a lower risk lending profile. As a result, you can place down a large deposit to offset the risk of the loan. This will give the lenders peace of mind that you are responsible with managing your savings to achieve a goal.
Having bad credit isn’t the end of your ability to borrow money. While it can make it hard to get a loan with a traditional lender, there are plenty of bad credit lenders on the market. Using one of these, you can get a loan for the same amount you would with a traditional lender.
Dan, a former Australian jetski champion is passionate about helping various organisations and has held various volunteer and executive positions with several non profit organisations in Australia.