Bad Credit Loans Toronto
Compare and Save With Loans Canada
Written by Bryan Daly
Best Bad Credit Loans Toronto (Online) January 2021
Good credit is a key factor that can earn you better approval odds and more affordable interest rates for any credit product in Toronto, now or in the future. Unfortunately, bad credit has the opposite effect. However, having bad credit doesn’t mean you’re beyond approval. There are actually plenty of loans and other credit products in Toronto that you can secure with bad credit.
A Look at Bad Credit
Before we discover the types of loans you can get with bad credit, let’s have a brief discussion about what bad credit is and what yours might be caused by.
In Toronto and the rest of Canada, your credit score ranges from 300 to 900 and is often used during the typical loan approval process to judge your creditworthiness. Since your score is a representation of your health as a credit user, the higher it is (closer to 900), the easier time you’ll have securing credit products with reasonable interest rates in Toronto. To most credit sources, especially banks and other prime lenders, a score of 680 or higher is required.
Read this for information about unsecured personal loans with good credit.
However, if your score drops between 300 and 560, you’ve fallen into the “bad credit” zone, making it more difficult to be approved with prime lenders in Toronto, where approval standards are more strict. More often than not, your bad credit status is caused by bad financial habits, including but not limited to:
Late, Short, and Missing Payments
One of the most influential sources of bad credit is falling behind on your payments for any loan or credit product can damage your credit score quickly. Every time you make a late payment or you skip a payment altogether, your credit score will drop. If you continue this behaviour and don’t explain the situation to your lender, you’ll soon find yourself in the bad credit zone.
Need to bounce your credit back from a late payment? Here’s how you can do it.
Carrying Too Much Outstanding Debt
Another factor that can damage your credit score is when your credit utilization ratio is too high on your revolving credit products, such as credit cards or lines of credit, which come with a set credit limit rather than a specific credit amount, like with a loan. The more debt you take on, the lower your limit gets, and the lower your credit score will drop. For the best results, try to use less than 30-35% of your available credit.
Having trouble understanding or managing revolving debt? Check this out.
Applying for Too Many New Credit Products
It’s actually good for your credit when you have a mix of credit types in your profile. As long as you’re using all those products responsibly, of course. However, it’s not good to apply for too much new credit within a few weeks or months. Each time a potential lender in Toronto checks your credit prior to approving or declining your application, a hard credit inquiry gets listed on your credit report. These inquiries decrease your score slightly and remain there for several years, which is especially problematic if you already have bad credit. The more hard inquiries you have, the less responsible you may look when other lenders in Toronto check your report during the application process.
On the other hand, soft inquiries, performed by yourself, landlords and other people who aren’t considering your for credit, don’t damage your score or make you look irresponsible. Checking your own credit is a good way of confirming your credit health before you apply for a loan!
There are many other reasons why your credit might have dropped to the point of being bad, such as:
- Loss of employment
- Reduced hours or income at work
- Unexpected financial emergencies
- Injuries or medical issues that prevent you from working
- Financial/credit damage caused by fraud or identity theft
Interested in more information about how your credit score is calculated? Click here.
Loan Types You Can Get With Bad Credit in Toronto
Whatever the cause of your bad credit happens to be, don’t give up. While you may have to apply with an alternative, private, or bad credit lender in Toronto, there are many loan types you can still be approved for, including but not limited to:
Secured Loans (Personal, Short-Term, Installment)
Depending on just how bad your credit is, it can be very helpful to offer up assets, such as your home or car, as collateral to secure it. By doing this, you’ll be providing your lender with security, which they can sell in the event that you default. Doing this should improve your approval chances and your interest rate.
For a better understanding of secured and unsecured debt, click this link.
If your applications are still being rejected, you can’t provide collateral, or you don’t want your credit checked for another reason, a guarantor loan might be the best course of action. This type of loan in Toronto is offered to those who can provide a cosigner (guarantor). They must be financially stable and be willing to take over your loan payments if you can’t afford them. Be warned, this can cause your guarantor significant debt and credit issues if they also stop making payments.
Want to know what types of lenders accept cosigners? Find out here.
Bad Credit Loans
At this point, your only choice may be for an unsecured loan through a lender in Toronto who works specifically with clients who have bad credit. While these loans can also be helpful and actually improve your credit when you make responsible payments, there are a few things to watch out for, such as:
- Higher interest rates – Since the lender in Toronto is taking more of risk by lending to a client who may not pay them back on time or who isn’t offering security, they may charge higher interest rates. This can cost you much more than you’re comfortable with over time and put you in further debt if you’re not careful.
- Chance of scamming – Borrowers in Toronto with bad credit are often in desperate financial situations and need fast cash. Scam artists and predatory lenders know this and will use that knowledge to trick those borrowers into giving up their banking information or paying unreasonably high-interest rates. This is especially common with payday loans in Toronto, so be very careful.
A Word About Loan Scams
As we said, scamming is often seen when it comes to bad credit products, because some borrowers, eager for credit, don’t research their supposed lender properly. However, this is an unfortunate possibility with almost any loan type. Scam artists and predatory lenders can be extremely convincing and manipulative, establishing fake companies, often online, with the purpose of stealing your personal and financial information. That’s why it’s essential to do research prior to applying for any credit product in Toronto. Remember, if the offer sounds too good to be true, it probably is.
Here are a few common warning signs:
- The “lender” asks for “loan insurance” before they can approve your loan. No real lender will ever ask for a deposit in advance because it is illegal in Canada.
- They don’t have any real customer reviews or a page in the Better Business Bureau database.
- They try to charge more than the maximum interest rate that’s permitted in Ontario ($21 per $100 you borrow).
- Their loan contracts or advertisements don’t provide information detailing all the costs involved, or other important information.
- They avoid your questions or use forceful behaviour to get you to commit.
Did you know bad credit can affect your daily life? Check out this infographic to learn more.
Ways of Improving Your Credit in Toronto
As we said, there are legitimate bad credit loans that are available in Toronto. However, they are usually more expensive. So, if you’re looking to save money, improving your credit might be a better tactic. Here are some credit improvement methods (which you can do on your own) and products (which you can apply for) that may do the trick:
Credit Improvement Methods:
- Make full, on-schedule payments for your other active credit products
- Avoid minimum payments
- Check your credit report for errors or signs of fraud/identity theft. If you find any, you can dispute those errors or report the fraud/theft incident to both of Canada’s major credit reporting agencies (Equifax and TransUnion).
- Lower your credit utilization ratio and debt-to-income ratio by paying down your outstanding debts.
Credit Improvement Products:
- Secured Credit Cards
- Credit Rehabilitation Savings Programs
- Credit Counselling
- Debt Consolidation Loans and Programs
Read this to see some other debt management products.
Toronto Borrowers and Bad Credit Loans
If you’re looking for a bad credit loan or a bad credit solution in Toronto, you’ve come to the right place, because Loans Canada can provide both. We’re always here to help you when you need. Contact us today or apply below!