Best Personal Loans for Bad Credit Scores

If you’ve got bad credit and the big banks won’t give you a loan, don’t despair. It is possible to take out a personal loan, even with a bad credit score.

A bad credit score doesn’t mean you’re a bad person. It doesn’t even mean, necessarily, that you’re bad with money. If you’ve never had a credit card, loans, or utilities in your name, you can still rate badly with lenders, as you’ve no financial history for them to check. But a bad credit score can mean that it’s harder, and more expensive, to borrow money. However, even if you’ve a black mark by your credit score, don’t stress, because it’s still possible to get a personal loan with a bad credit score.

When institutions lend money, their main concern is losing their cash. Your credit rating reflects this risk. If, in the past, you’ve missed payments on a loan or bill, lenders will consider you a higher default risk. To cover this increased risk, they’ll charge you a higher rate of interest.

Currently, Canstar rates 23 unsecured personal loans from 11 providers. And there’s a big difference in interest rates and charges on our comparison tables. Establishment fees range from just $50 to many hundreds of dollars, depending on the amount borrowed. And while interest rates start around 7%, they can be as high as 23%.

But just because you’ve got a bad credit score, it doesn’t mean that you’ll not be able to get a loan.


Best Personal Loans for Bad Credit Scores. In this article we cover:


Loans for bad credit: when the banks say no

Quite often the big banks will refuse to lend money to people with bad credit scores. They tend to offer lower interest rates but, as a result, limit the number of riskier loans they grant.

However, many smaller lenders make it their business to lend to people with imperfect credit histories. And while their interest rates may be higher, they are an accessible option if you genuinely need funds.

Each lender will look at your credit history differently, and have their own ratings system. But here’s a rundown of some of the loans and interest rates currently on our database for those with less-than-perfect credit scores.

The following figures are for a $5000 loan in Auckland over a 3-year term, figures correct as of 07/12/21.

Lender/Loans Interest Rate Application Fee Monthly Repayment Total Cost of Loan*
Unity
Unsecured – Yellow 12.9% $200 $168.23 $6056
Unsecured – Green 16.9% $200 $178.01 $6408
Unsecured – Blue 22.9% $200 $193.29 $6958
Kiwibank
Unsecured 18.95% $240 $183.15 $6593
Harmoney 
Unsecured C1-C5 11.99% $150 $166.05 $5978
Unsecured D1-D5 17.99% $150 $180.74 $6507
Unsecured E1-E5 19.99% $150 $185.79 $6688
Cooperative Bank 
Unsecured C to C- 12.95% $200 $168.35 $6061
Unsecured D 15.50% $200 $174.55 $6284

* Total loan costs are for principal and interest only, excluding fees and charges.

Loans for bad credit: how to fix your credit score

If you don’t need the money immediately, it could pay to work on improving your credit score before applying for a loan, to secure a lower interest rate.

Improving a credit score isn’t a quick or easy fix, however it is possible. And taking back control of your personal finances will have other long-term benefits, ultimately helping you save for a brighter financial future.

Things you can do to improve your credit score, include:

  1. Paying your bills on time
  2. Not applying for new credit
  3. Paying off existing loans and debts
  4. Lowering the limit on your credit cards

For more information on improving your credit score, check our our story: How Long Does It Take to Fix a Poor Credit Score?

Loans for bad credit: check the fees and charges

Regardless of your credit score, you should always thoroughly read the small print of any loan agreement. There are many hidden fees and charges that can apply, and you need to be across all of them before you sign on the dotted line.

Things to look for include:

The per annum interest rate and loan period

Always check the exact interest rate that you’ll be paying. Most loan companies have calculators and are clear about their true interest rates. Per annum, or p.a., is the rate you want to concentrate on – which is the standard measure of interest rates.

Also make sure that you know the exact term of your loan contract before you sign. Some repayment calculators on loan companies’ websites are not clear about the length of the loan period. A low monthly repayment sum might look attractive, but if you’re paying it for years and years, you’ll end up paying more for your loan. So check the term of the loan, not just the monthly repayments – the longer the term period the more you’re likely to pay.

Fees and charges

  • Establishment fees – some lenders don’t charge establishment fees. Others charge a fee depending on the size of your loan. Be aware of how much you’re paying as a proportion of your loan
  • Brokerage fees – some loan websites belong to brokerages, not loan providers. For recommending your business to a loan provider, the brokerage will exact a fee, which could be up to $1000
  • Administration fee – this is an ongoing fee charged over the life of your loan to cover the costs of administration. Some lenders don’t charge this fee, others charge $7.50 per month. Over a three-year loan, a $7.50 monthly fee adds up to an extra $270 on your repayments!
  • Variation fee: to change the terms of your loan
  • Full repayment fee: to pay off your loan early. This can run into big amounts if it covers the lender for any loss of interest

Loans for bad credit: shop around

Ultimately, the best way to ensure you get the most advantageous loan rate is to do your research, and to check out all the lenders in the market. Even if you’ve a poor ‘D’ credit rating, there are still a range of loan options available. If you’re willing to shop around and compare lenders, you don’t have to pay sky-high fees and interest rates.

A great way to do this is to use Canstar’s free personal loan tool. It compares all the big banks and lenders across loan rates and fees in one easy-to-use tool. It also gives added information about Canstar’s expert research into the best loan providers and our prestigious Star Ratings and awards.

The table below displays some of the unsecured personal loan products available on Canstar’s database for a three-year loan of $10,000 in Auckland (some may have links to lenders’ websites). The products are sorted by Star Rating (highest to lowest) followed by company name (alphabetical). Use Canstar’s personal loan comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals.

Compare Personal Loans


About the author of this page

Bruce PitchersThis report was written by Canstar’s Editor, Bruce Pitchers. Bruce began his career writing about pop culture, and spent a decade in sports journalism. More recently, he’s applied his editing and writing skills to the world of finance and property. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.


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