Who will lend me money with defaults on my credit file if I own property?

A credit score measures how someone has handled unsecured promises to pay. A caveat loan is not an unsecured promise. It is a short loan against real property with a defined repayment event, and that changes which questions matter.

What carries the decision

Three things: how much equity sits behind the first mortgage, how saleable the property is, and how the loan gets repaid. A director with two telco defaults and a paid-late credit card, offering a commercial unit at 50% combined LVR with a contract of sale in hand, is a straightforward approval. A director with a perfect file and no exit is not.

What bad credit does change

• Price. A messy file with a weak explanation prices higher than a clean one.
• LVR. Lenders keep more margin, so expect a lower ceiling than the indicative 65%.
• Questions. Every adverse entry needs a short, honest explanation. A business that hit a bad year, a dispute with a supplier, an ATO debt now being cleared - these are understood. Evasion is not.
• First mortgage conduct. Arrears on the existing bank loan matter more than any credit score, because they signal that the first mortgagee may act.

Knocked back everywhere? The three realistic paths

If the banks and the online lenders have all said no, the next step depends on one question: do you own or part own property with equity in it?

• No property or asset. A secured loan is not available. The options are a small amount from a bad credit personal lender, a No Interest Loan if you are eligible, or a free financial counsellor through the National Debt Helpline. Any lender promising guaranteed approval, or asking for a fee before you receive money, is a warning sign, not an option.
• Property with equity, business or investment purpose. This is where a caveat loan or second mortgage fits. The assessment is on the equity and the exit, not the credit score. Unpaid defaults, a court judgment, or a past Part IX debt agreement do not automatically rule it out. If a bank has just declined you, see bank declined business loan.
• Property with equity, personal purpose. Private lenders are limited here because consumer lending is regulated differently. A financial counsellor can often negotiate directly with the creditors, and a bad credit mortgage broker is the realistic lending path for a home loan refinance.

What a private lender actually looks at

• Equity after the existing mortgage. The lender works from what the property would sell for, less what the bank is owed, less a margin. How much you can borrow is explained at what LVR can I borrow.
• Purpose of the funds. Business and investment purposes are straightforward and are confirmed in a business purpose declaration. Personal purposes are limited.
• How it will be repaid. A sale, a refinance once the defaults are cleared or paid, incoming funds, or business cash flow. The exit is the part the lender tests hardest.
• Cost. Private loans price above a bank mortgage, and a messy file sits at the higher end of the range, but the security usually makes the cost per dollar lower than unsecured bad credit lenders for anything beyond a small amount. See caveat loan interest rates and caveat loan fees.
• Speed. Settlement in days rather than weeks is normal once title, identity and the exit are confirmed. See how fast can you settle.
• Valuation. Not always needed for a caveat loan at a conservative LVR; a desktop or kerbside valuation is common. See does a caveat loan need a valuation.

The hard stops

A current bankrupt cannot give security over property that has vested in a trustee. A company in liquidation or administration cannot borrow in the ordinary way. A property subject to a court freezing order cannot be charged. And taking on new secured debt when the company is already insolvent raises director liability questions that need advice first.

The exit is where bad credit bites

If the plan is to refinance the caveat loan with a bank in three months, the same credit file the caveat lender looked past will be in front of the bank. Be realistic. Where the file will take time to repair, the better exit is a sale, incoming funds, or a longer private facility such as a second mortgage, not a bank refinance that will not happen. See what is an exit strategy.

Using part of the loan to clear the defaults

A common structure is to borrow a little more than the immediate need and pay out the defaults, the judgment or the tax debt at settlement, with the lender paying those creditors directly. A paid default still shows on the file for its listing period, but a paid default with a clean repayment history behind it is a very different conversation with a mainstream lender than an unpaid one. That is what turns a bank refinance from a hope into a plausible exit, and it is worth telling the lender this is the plan from the start.

Upfront fee scams to avoid

People with defaults who need money urgently are the main target for loan scams. A genuine private lender deducts its fees from the loan at settlement and documents them in the loan agreement. Nobody should be asked to pay an application fee, an insurance premium or a release fee into a bank account before any money has been advanced. Guaranteed approval without looking at the property is the same warning sign. See private lending scams and upfront fees.

Who should use the enquiry form

If you own or part own property, the funds are for a business or investment purpose, and you can describe how the loan will be repaid, use the form and include the property address, the approximate balance on the existing mortgage and the amount you need. The defaults can be explained in a sentence or two. If you do not own property, or the money is for personal debts, a free financial counsellor through the National Debt Helpline is the right next call rather than a lender.