I Have A Bad Credit……..Can I Still Get A Loan?
Non-conforming lenders, also known as specialised or sub-prime lenders exist to provide bad credit loans to those people who do not fit with the traditional bank lending criteria.
Typically their credit file will have a default, judgment, clear out, Part 9 or Part 10 or bankruptcy listing notated on it. The listing will notate the value of the default, if it is paid or unpaid, if paid – how long ago it was paid, date of listing and when the listing is to be removed.
Unfortunately paying the default or judgment after the event will not have it removed. Once there is a credit impairment listed on your credit file, it remains there (even if it is paid) for five years. A more serious default or a bankruptcy can be listed for up to seven years.
Although loan companies will usually focus on all your past activities, they could be more keen on the last one or two years of your credit report. Showing a recent activity of making on-time monthly payments could help minimize payment issues from past bankruptcy listing.
Non-conforming Lenders in The Australian Market
These days you will find more than 12 primary non-conforming lenders in the Australian market who can offer loan products that don’t suit the lending conditions of major loan providers like traditional banks and credit union. Note that not all non-bank lenders are non-conforming. Also, non-conforming lenders must not be mistaken for non-bank lenders.
Non-conforming lenders can accommodate the following loan types:
– Debt consolidation, unlimited facilities and including ATO debts
– Refinance with cash out for other acceptable purposes
– Purchase of an owner occupier home
– Purchase of an investment property
– To raise capital for business purposes (including working capital) providing there is a residential security
Where there is a non-conforming loan application the lender is assuming the greater risk position. To offset the risk the rate and fees are set at a higher level than the typical rates and fees of a mainstream lender.
Keep in mind a non-conforming loan is a short term solution and the benefits can outweigh the downside. Consider a situation where your default will continue to show on your credit file for the next five years. In a rising home market, where prices are increasing 5% year on year, a $300,000 house will rise in price to $382,500.
Set out below is a table indicating the level of impairment and the loan to value ratio that a bad credit home loan will be extended to:
Unlimited adverse credit impairment (paid or unpaid) 12 months plus prior to loan application
One month mortgage arrears within the last six weeks at the time of loan application
No limit to the number of debts to be consolidated
Refinances – 85%
Equity Releases – 85%
|Unlimited adverse credit impairment (paid or unpaid) 12 months plus prior to the loan application|
Two adverse credit (paid or unpaid) 12 months or less prior to loan application
Two months current mortgage arrears
No Limit to the number of debts to be consolidated
Refinances – 80%
Equity Releases – 80%