Can I Get a Personal Loan With Bad Credit?

If you need a loan urgently but you have bad credit, what’s the deal? What are the risks? Canstar examines all you need to know.


Can I get a personal loan with bad credit? In this story we cover:


Let’s begin by explaining the basics about credit scores and reports.

What are credit scores and credit reports?

A credit score is a number between 0 and 1000 that indicates how credit-worthy you are. The higher the score, the better your credit rating. Most Kiwis have a credit score somewhere between 650 and 768, which is considered average, according to credit bureau Centrix.

Your credit score is a number that reflects the financial history listed on your credit report. This includes times you’ve missed bill payments, made applications for credit, or defaulted on a loan. Your credit score is important if you want to apply for a mortgage, need a car loan, or are applying for a credit card or personal loan. 

If you’ve defaulted on a loan, forgotten to pay a bill or had an application for credit declined, this will show up on a credit history report. These things are not deal breakers when it comes to applying for a home loan, for example, but certainly will be something that banks check.

A bad credit rating may arise from the following kind of situations:

  • Missed payments
  • Defaults on payments
  • Bankruptcy
  • Other factors, indicating financial unreliability

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How do lenders use my credit score?

When you apply for credit or a loan, your credit score can affect the approval process, as it gives lenders an indication of your creditworthiness. Banks and other lenders look at this information to help them determine whether they’ll lend you money, how much they’ll lend and the interest rate.

Can I get a loan in NZ if I have a bad credit score?

If you’ve a bad credit history, it’s still possible to get a loan, however your choices will be limited. And it will undoubtedly cost you more in interest. Lenders grade their loans according to customers’ credit ratings. If you’ve got perfect credit, you’ll be offered an interest rate a lot lower than somebody with a terrible credit rating. 

Currently on Canstar’s database, the range of interest rates for a $10,000 loan over five years stretches from 7%, for those with a good credit rating, to 27%, for those with a bad one. Different loan companies grade their loans differently, some use a simple A (best) to E (worst) scale, others use gradings such as colours: Orange (good) and Purple (bad).

If you’ve a disastrous credit rating, you could find that your loan application is rejected.

Secured loans: what are they?

Secured loans use an asset, such as a car, to secure a loan. The asset is then used as security against the debt. The money borrowed can generally be used for any legal purposes – like debt consolidation, home renovations, school fees, paying for a holiday or buying a car – but always check with the lender first. If you’re unable to repay the loan, the lender is entitled to sell your secured possession to cover any outstanding debt.

For an unsecured personal loans, the lender requires no security. The loan is still subject to your ability to repay it, and if you can’t, the lender may take you to court. The interest rates on unsecured loans tend to be higher, on average, than on secured personal loans. That reflects the lender’s higher risk of losing their money.

So, yes, you can obtain finance with a bad credit score, but you’ll have to accept that you’ll likely pay a higher interest rate on the loan, or have to provide an asset for security.

The good thing is that even though you are paying more for your loan, by repaying it, regularly, and on time, you’ll improve your credit rating. This means your next loan should cost you less.


Looking for a great loan?

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.


Things to keep in mind:

  • Be very aware of how much you can afford to pay, for the loan, in interest payments, and in fees before signing any dotted line. Budget accordingly 
  • Research thoroughly different providers and look closely at their details and conditions. Don’t fall for any dodgy sounding offers. If it’s too good to be true, it probably is
  • Remember that a bad credit rating isn’t forever. You can improve your credit rating by showing loan providers that you have good financial habits and the ability to repay loans on time
  • If you’re applying for a high-interest loan just to cover day-to-day essentials or unforeseen living costs, it’s always worthwhile contacting Work and Income first, to see if you qualify for Hardship Assistance

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What are my other options?

Guarantor personal loan

A guarantor personal loan is a loan that is guaranteed by a friend or family member. This may make it easier for you to get approved for a loan where you might otherwise not qualify. Some lenders offer a lower interest rate if you have a loan guarantor. If you ask someone to be your guarantor, keep in mind that they will be legally responsible for paying back the entire loan, including any fees, interest and charges, if you fail to make the repayments.

Borrow from family or friends

Another option could be to ask a friend or family member for a loan. However, this option does run the risk of damaging your relationship, particularly if your family member ends up needing the money back sooner than they’d originally thought. If borrowing money from friends or family, make sure both parties agree on exactly how and when the money will be repaid. If you think it will take you a while to repay the loan, make sure your friend or family member understands this. Even if you don’t have a written contract, be aware that your friend or family member could possibly still take you to court if you don’t pay back the loan.

How can I improve my credit score?

If you want to repair or improve your credit score, it’s not a quick and easy process. It can take a significant amount of time and require an extended period of financial responsibility on your part. But if you want to improve your credit score, you should:

  1. Pay your bills on time
  2. Think carefully before applying for any new credit
  3. Pay down any existing loans and debts
  4. Consider seeking the assistance of a financial counsellor
  5. Check your credit report for any inaccuracies
  6. Hold onto credit cards you can manage
  7. Lower the limit on your credit cards

Related article: How Long Does It Take to Fix a Poor Credit Score?

Where can I get free financial counselling?

If you have a bad credit rating, or are even in financial hardship (which is when your spending exceeds your income) you might also be interested in seeking support from a qualified professional. You can contact MoneyTalks, a free financial helpline for advice and support from trained financial mentors. MoneyTalks can also connect you with services in your community.

Do your research

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. If you’re willing to shop around and compare lenders, you’ll be able to secure the best possible loan rates and fees.

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 with Canstar

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