Bad Credit Loans in MontrealBy Bryan in Loans
Montreal is much like any other Canadian city. It gets cold in the winter, hot in the summer and has a rich, diverse culture. And, just like anywhere in Canada, many of its citizens require loans and other credit products to help with their financial situations. They need credit cards for their daily expenses, loans for their cars, and mortgages for their homes. Whether they have good or bad credit, there are plenty of banks, credit unions, and other lenders who can provide them with those much-needed credit products.
Want to learn to date on a budget in Montreal? Read this.
The difference between Montrealers with good credit and bad credit, however, is how they’ll need to go about getting approved for those products. Many lenders have regulations they must adhere to when it comes to their borrowing procedures. As a result, a lot of Montreal borrowers with poor credit have a harder time getting approved than those with good credit. Well, if you’re a Montrealer in a similar situation, don’t worry because there are always places you can go. We at Loans Canada understand the plight of the bad credit borrower and we’re here to tell you there is always hope.
What Causes “Bad Credit” in Montreal?
As we said, Montreal borrowers are just like any others. Sometimes they’re in good financial standing, sometimes they need a bit of help to get by. Whatever your financial position might be, one thing is clear, the health of your credit is very important to your present and future self. The reality is when you’re trying to apply for credit products, no matter what those products are, the strength of your credit report, score, rating, and history make up a significant portion of your creditworthiness. By “creditworthiness”, we’re referring to how much of a borrowing risk a lender will consider you to be. The better your overall credit is, the better your chances are of getting both approval and favorable interest rates, and vice versa. That’s why it’s essential to maintain good credit to the best of your ability. However, if your credit is considered “bad” by most standards, keep reading to find out why.
What is a “Credit Report”?
The state of your credit report is one of the main factors that lenders take into account before they approve or deny your applications. Essentially, a credit report is a profile that contains a record of all your credit-related transactions from the point you become a credit user to the time when those transactions are expunged several years later. Besides your personal information (name, address, Social Insurance Number, etc.) most instances of your credit usage remain in your report for 6-7 years, depending on what they are.
To find out how long information remains on your credit report, click here.
What is a “Credit Inquiry”?
When considering you for new credit, lenders will request a copy of your credit report from one or both of Canada’s main credit reporting agencies, TransUnion and Equifax. Commonly referred to as credit “bureaus”, these agencies are the central hubs where all Canadian credit reports are held. Most lenders do business with only one bureau. So, when determining your creditworthiness, one of the first steps lenders take is to pull your credit report, otherwise known as a credit “inquiry”. There are two types of inquiries:
- A “soft” inquiry often happens when a potential landlord, employer, or other organization pulls your report but is not entering into a credit-related relationship with you. Soft inquiries also occur when you yourself request a copy of your report for any reason. Either way, your credit score will not be affected. Look here to learn how to get a free annual copy of your credit report.
- A “hard” inquiry occurs when your current and potential lenders request your report while considering you for new credit. Hard inquiries do cause your credit score to drop a few points and will affect it for several months, so make sure not to apply for too much credit, all at once.
When a lender requests your report, what they’re really looking at is your credit history, a record of all your credit-related transactions, including your payment history, active or closed accounts, and financial delinquencies (debt management programs, consumer proposals, bankruptcies, etc.). The better managed your credit history looks, the better your chances of approval will be.
What is a Credit Score?
Your three-digit credit score is another important factor that most lenders look at during their approval process. Similar to your grade-point-average, your credit score encompasses all your credit activity into a collective average. And, just like your grades, it fluctuates based on how you’ve been managing your credit transactions. If you make timely full payments and participate in other responsible credit behaviours, your score rises gradually. If you do the opposite, meaning you make late, short, or miss payments entirely and participate in other irresponsible credit behaviours, your score drops. Once again, the better your credit score is, the better your chances of approval will be.
According to TransUnion, a score of 650 or more will give you the best odds of gaining a lender’s approval and a favorable interest rate to go with it. The further your score goes below that level, the worse your chances will be of approval are and the higher your interest rate will be.
Wondering why your credit score may have dropped? Click here.
What is a “Credit Rating”?
Another area where it pays to be prudent is your credit rating, which lenders also examine. For every credit account you have active, no matter what the product, you’ll have a credit rating, which has a letter and corresponding number. Again, the higher your rating is, the higher your chances of approval and favorable interest rates are.
– “I”: means your loan is “installment” based, so you’ll make regular payments (weekly, monthly, etc.) over a specified period of time until the full sum is repaid.
– “O”: means you have “open” credit, commonly seen with lines of credit or student loans. Here you’ll have a credit limit to borrow from as needed. You’ll also have a minimum monthly balance payment to keep up with.
– “R”: means you have “revolving” credit, the most frequently seen type of credit rating. Once again, your regular payments will depend on your account balance. The most common example of revolving credit is a credit card.
Beside your letter, you’ll also be given a number that corresponds to how you’ve been managing the account. *Note: we’ve used “R” (revolving) as an example, but the numbers can coincide with any of the above letters.
- R0: Account is unused or has too little credit history.
- R1: Account holder has paid one or several bills within 30 days of their due date, or is not more than one payment overdue.
- R2: Account holder has paid one or several bills more than 30 days past their due date. However, their payments are not more than 60 days or two payments overdue.
- R3: Account holder has paid one or several bills more than 60 days past their due date. However, their payments are not more than 90 days or three payments overdue.
- R4: Account holder has paid one or several bills more than 90 days past their due date. However, their payments are not overdue by more than 120 days, or four payments.
- R5: Account is 120 days or more overdue. However, it has not yet been rated “9.”
- R6: This rating is non-existent.
- R7: Account holder is currently making regular payments via a special program/agreement to settle their debts.
- R8: Account is currently in repossession.
- R9: Account is currently in serious debt, collections or bankruptcy, or the holder has changed dwellings without providing their lender with a new address.
To sum all this up, bad credit is typically caused by any of these credit-related factors being managed irresponsibly. The more defaulted transactions you make, the worse your credit history, score, and rating will look. By “defaulted” we mean deviating from your predetermined payment regiment in any way, such as missed, late and short payments. Once your credit is bad, it takes a lot of time and effort to strengthen it again, so be very careful how you manage all your credit accounts.
Credit Products for Bad Credit Borrowers in Montreal?
As we mentioned, Montrealers with bad credit can get all the same types of products that those with good credit can. The difference here is that there are various loans, mortgages and other services that are designed especially for those with poor credit.
Secured Credit Cards
As credit cards are usually the first credit product that borrowers get, it seems appropriate to start there. Available at any banking institution, secured credit cards are made for everyone, but advertised more toward those with poor credit, who don’t qualify for regular unsecured cards. They’re called “secured” because cardholders need to provide a security deposit to obtain them, the amount of which usually equals the amount of available credit they wish to have. The card itself is then secured against their deposit. So, if they don’t pay their balance for any reason after a certain amount of time passes, their deposit will be forfeit to regain the lender’s loss. Secured cards are a good credit-building tool. If the cardholder doesn’t initially qualify for an unsecured card, they can use their secured one to raises their credit score and rating until they do. Once they do qualify, they can pay their remaining balance, cancel the secured card and their deposit will be returned.
Click here to learn how fast a secured credit card works.
Even if you have bad credit, you may still be able to find unsecured loans, meaning you won’t have to offer any security (collateral) to be approved, as you would with a secured credit card. However, unsecured bad credit loans generally come with high interest rates, which could only put you in unmanageable debt. So, if you’d like to avoid such high rates or your credit is so bad that you don’t qualify anywhere, you could also opt for a guarantor loan. To apply, you’ll need to find a borrower with stronger credit and finances to co-sign your application. If approved, you may receive a loan with a more reasonable interest rate without your credit being a factor (instead, your guarantor’s credit will be examined). Even though your credit is no longer an issue, you will still be primarily responsible for your loan payments. Every timely, full payment you make should then improve your credit until you no longer need a guarantor.
While they can be a great option for Montreal borrowers with bad credit, it’s important to be aware of the potential drawbacks to these loans. If you don’t manage to make your payments on time and in full, not only will your own credit be damaged further, but the responsibility of the loan will fall to your guarantor instead. That means if they also default, their credit will suffer, they’ll land themselves in debt, and both your financial profiles could be ruined.
Not sure if a guarantor loan is right for you? Take a look at this.
Another popular product for borrowers with bad credit, available through any prime or subprime lender in Montreal, is the personal loan. Used for anything from home or vehicle repairs to paying off other debt, to household supplies, personal loans are valuable tools for anyone who needs a moderate amount of money to deal with a personal financial situation. Just like any loan, applicants will go through a screening process before they’re approved. If they qualify, they’ll be granted a certain amount of loan money, which they’ll use for whatever they need, then pay back through regular installments, until the full loan is paid back.
To learn how to qualify for a personal loan, read this.
Bad Credit Car Loans
Loans for the purposes of buying and repairing cars are another common area where borrowers often struggle if they have bad credit. However, there are lenders and dealerships all over Montreal that won’t give too much hassle to those with lower credit. The difference here is that, once again, borrowers with bad credit will often have to deal with higher interest rates than those with good credit. While it is always possible to work out an affordable payment schedule with a lender or dealership, the regular payments and rates are always a risky endeavour for anyone who isn’t financially stable enough to afford them, so be aware of this before you apply.
To find out how to get a bad credit car loan, click here.
Bad Credit Mortgages
One of the most in-demand credit products, not just for those with bad credit, but borrowers in general is, of course, the mortgage. With the introduction of the OSFI mortgage stress-test and the decline of affordable housing in Canada, it’s becoming difficult for potential homeowners of any credit status to afford a typical mortgage. However, this is especially true for those with bad credit. Since mortgages can be extremely expensive, many prime lenders, such as banks, are making their lending process far more strict. In fact, as of 2018, the minimum credit score required for approval from a prime lender will be 600 for mortgages under $1-million. This, in turn, has caused an increase in business for subprime lenders, such as trust companies and private businesses. Since these institutions specialize in clients with poor credit, if your credit score is below 600, you can try applying with a subprime lender for your mortgage needs.
Look here to learn how to buy a house in Canada with bad credit.
Debt Consolidation Loans
These types of loans are reserved not only for those under a significant amount of debt but those who have bad credit as a result of it. Debt consolidation loans can also be applied for through the majority of lenders, both prime and subprime. Generally, these loans are offered as an option that comes before more serious debt solutions, such as debt management programs, consumer proposals, and bankruptcies. So, if your debt load hasn’t yet reached the point of being completely unmanageable, but is still severe enough that your regular finances can’t help, you may need a debt consolidation loan. One thing to be aware of, however, is that only certain types of debts can be resolved using a consolidation loan. Debt caused credit cards, utilities, car and personal loans do qualify. Mortgage debt, on the other hand, does not.
Much like a personal loan, upon your application, your credit will be reviewed to determine your qualification. In your application, you’ll have to list the debts that you need to cover. If approved, you’ll be granted an appropriate amount to settle the vast majority of those debts. Once they are taken care of, you should have a singular debt to pay back toward your primary lender, through monthly installments with interest. Another thing to be aware of is that debt consolidation loans are not always easy to qualify for. For instance, banks do often require borrowers to have a decent credit score and a good income, so discuss this with your lender before you apply.
If your consolidation loan application gets denied, read this.
Preparing Yourself for the Loan Application Process
While every lender’s application process is different in some way, there are certain key points of your finances that the majority of them will examine. This is particularly true when it comes to more expensive products, such as car loans, mortgages, and debt consolidation loans, since the lender is making a riskier investment than say, a small personal loan. So, it’s important to be prepared for the application process by:
- Raising your credit score and rating as much as possible prior to arrival. Find out how by clicking here (ADD: Improving Credit 2018?).
- Paying off as many of your other debts as you can.
- Bringing a trusted family member, friend or spouse as co-signer (optional, but useful)
You’ll also need to provide proof of:
- Identity/residency (driver’s license, passport, etc.)
- Stable employment and income (pay stubs, salary, employment record, etc.)
- Assets (also optional, but useful)
Bad Credit Isn’t the End of the World
In conclusion, whether you live in Montreal or anywhere else in the world, it’s clear that having good credit will open up all sorts of financial avenues for you. With a healthy credit rating, score, and history, you’ll be a shoo-in for any credit products you need, as well as the best interest rates to go with them.
Click here to learn how a better credit score can help you in 2018.
That being said, if you currently have bad credit, you aren’t completely out of luck. Yes, you may have a harder time getting approved and getting a low-interest rate, but that certainly doesn’t mean that your applications will be denied every time you apply. As we said, every lender is different in the way that they operate. While many prime lenders, banks included, have stricter policies for their lending procedures, there are plenty of other organizations all over Montreal who will help you get the credit products you need, including Loans Canada.