What is Bad Credit?
Bad credit refers to a low credit score that indicates to lenders you may have had difficulties managing debt in the past. In New Zealand, credit scores typically range from 0 to 1000, with scores below 500 generally considered poor or "bad credit."
Common reasons for bad credit include:
- Missed or late payments on loans, credit cards, or bills
- Defaults on previous credit agreements
- County Court Judgments (CCJs) or bankruptcy
- High credit utilization (using most of your available credit)
- Too many credit applications in a short period
- No credit history at all (thin credit file)
Having bad credit doesn't mean you can't access finance, but it does mean you may face higher interest rates and stricter lending criteria. Many New Zealand lenders specialize in bad credit personal loans and understand that people's financial situations can change.
Lenders That Accept Bad Credit in New Zealand
While traditional banks may be less flexible with bad credit applications, several lenders in New Zealand specialize in helping people with poor credit histories:
Second-Tier Lenders
These non-bank lenders often have more flexible lending criteria and are willing to look beyond your credit score. They consider factors like your current income, employment stability, and ability to make repayments. Examples include Harmoney, Latitude Finance, and Zip Money.
Credit Unions
Credit unions are member-owned financial cooperatives that often take a more personal approach to lending. They may be willing to work with you if you have bad credit, especially if you're a long-standing member or can demonstrate improved financial habits.
Peer-to-Peer Lending Platforms
P2P platforms like Harmoney connect borrowers directly with individual investors. Your loan application is assessed on multiple factors, not just credit score, giving you a better chance of approval even with bad credit.
Specialist Bad Credit Lenders
Some lenders specifically cater to bad credit borrowers. While interest rates are typically higher, these lenders understand that bad credit doesn't always reflect your current financial situation. They focus more on your ability to repay the loan now.
Important Note: Be cautious of loan sharks or predatory lenders charging excessively high interest rates. All legitimate lenders in New Zealand must be registered with the Financial Markets Authority and comply with responsible lending laws.
How to Improve Your Approval Chances
Even with bad credit, there are steps you can take to increase your chances of loan approval and potentially secure better interest rates:
1. Check Your Credit Report
Get a free copy of your credit report from Centrix, Equifax, or illion. Check for any errors or outdated information and dispute any inaccuracies. Even small errors can negatively impact your score.
2. Reduce Existing Debt
Pay down existing debts, especially high-interest credit cards. This improves your debt-to-income ratio and shows lenders you can manage credit responsibly. Consider using our loan calculator to plan your repayments.
3. Demonstrate Stable Income
Lenders want to see that you have a reliable income source. Gather recent payslips, tax returns, and bank statements showing regular income deposits. The longer you've been in your current job, the better.
4. Consider a Guarantor
A guarantor with good credit who agrees to repay the loan if you can't can significantly improve your approval chances and help you access better rates. Make sure your guarantor understands the responsibility they're taking on.
5. Apply for a Smaller Amount
Requesting a smaller loan amount makes you less risky to lenders and increases your approval chances. Only borrow what you truly need and can afford to repay.
6. Offer Collateral
A secured loan backed by an asset like a car or savings can help you get approved despite bad credit. However, remember that you risk losing the asset if you can't make repayments.
7. Explain Your Circumstances
If your bad credit resulted from temporary circumstances (job loss, medical emergency, divorce), explain this in your application. Show evidence that your situation has improved and you're now in a better position to manage debt.
8. Avoid Multiple Applications
Each loan application creates a hard inquiry on your credit report, which can temporarily lower your score. Instead, use our comparison service to find suitable lenders before applying.
Alternatives to Bad Credit Personal Loans
If you're struggling to get approved for a personal loan, consider these alternative options:
- →Debt Consolidation:
If you're dealing with multiple debts, a debt consolidation loan might be easier to obtain and could save you money by combining high-interest debts into one lower-rate loan.
- →Credit Builder Loans:
Some lenders offer small loans specifically designed to help you rebuild your credit. These typically have lower amounts and shorter terms, making them easier to manage.
- →Family or Friends:
While it can be uncomfortable, borrowing from family or friends may be an option. Make sure to treat it professionally with a written agreement outlining repayment terms.
- →Financial Hardship Programs:
If you're in genuine financial difficulty, speak with a free financial mentor through services like FinCap or contact your existing creditors about hardship programs.
- →Improve Your Credit First:
If your loan isn't urgent, spend 3-6 months improving your credit score first. Pay bills on time, reduce debt, and avoid new credit applications. This can help you qualify for better rates later.
Understanding the Costs
Bad credit loans typically come with higher interest rates to compensate for the increased risk to lenders. Here's what you need to know:
Typical Rate Ranges:
- Good Credit: 7.95% - 15% p.a.
- Fair Credit: 15% - 22% p.a.
- Bad Credit: 22% - 29.95% p.a.
While higher rates mean you'll pay more over the life of the loan, a bad credit loan can still be worthwhile if it helps you:
- Consolidate higher-interest debt (like credit cards at 20-25%)
- Cover an emergency expense that can't wait
- Rebuild your credit through on-time repayments
- Avoid even costlier alternatives like payday loans
Use our loan calculator to estimate your monthly repayments and total interest costs before committing to any loan.