When it comes to applying for a loan, often we think that a high credit score is the be-all-end-all of loan approval. While having a high credit score is great, it’s not always manageable for all Canadians. The good news is, your credit score doesn’t need to read 800 for you to get approved for the unsecured personal loan you need.
What Qualifies As “Bad Credit”?
In Canada, as soon as you’re approved for your first credit product, your lender will notify one (or both) of Canada’s credit reporting agencies, Equifax and TransUnion. That agency will then compile all your credit-related information into a credit report. As its name suggests, a credit report functions somewhat like a report card you would get from school, wherein all your credit activity (payments, transfers, cancelled accounts, etc.) will be listed. You have bad credit when your credit report is littered with missed payments, cancelled accounts, accounts in collections, debt settlements and other derogatory marks.
What Is A Credit Score?
Your three-digit credit score is another significant factor for lenders when they’re determining your creditworthiness. In Canada, credit scores range from 300-900. According to TransUnion, a score of 650 or higher is what borrowers should ideally have to receive the best chances of approval for credit products, as well as more favourable interest rates to go with them. The further your score is below 650, the more your chances of approval will decrease and the higher your interest rates will be.
What Is A Credit Rating?
Each active credit account you have also comes with a “credit rating”, identified by corresponding letter and number. If you’ve been managing the account responsibly, meaning you’ve been making your bill payments on time and in full, you’ll have a high rating. However, if you’ve been making late or short payments, or even worse, missing them entirely, your rating will drop. The rating system is as follows:
means your loan is “installment” based, so you’ll be making divided payments (weekly, monthly, etc.) over a specified period of time until the full sum is repaid.
means you have “open” credit, commonly seen with lines of credit or student loans. You’ll have a credit limit, which you can borrow from as needed. You’ll also have a minimum monthly balance payment to keep up with in order to avoid a penalty.
means you have “revolving” credit, the most common type of credit rating. Once again, your regular payments will depend on your account balance. The most frequent example of revolving credit is a credit card.
Beside each letter, you’ll also be assigned a number that corresponds to how you’ve been managing the account in question. *Note: we’ve used “R” (revolving) as an example, but the numbers can coincide with any of the above letters.
Too little credit history or the account is unused.
The account holder pays (or has paid) within 30 days of payment due date or not over one payment past due.
The account holder pays (or has paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
The account holder pays (or has paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
The account holder pays (or has paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
The account is at least 120 days overdue, but is not yet rated “9.”
This rating does not exist.
The account holder is making regular payments through a special arrangement to settle their debts.
The account is in repossession (voluntary or involuntary return of merchandise).
The account is in significant debt, has been placed in collections or bankruptcy, or the account holder has moved without providing a new address.
What Is A Bad Credit Loan?
A bad credit loan is just that, a loan that is meant to help those consumers who are currently struggling with bad credit. Having a perfect credit score is not always attainable, so what do you do when your credit is preventing you from getting approved for the loan you want and need? Apply with us. At Loans Canada we pride ourselves in being able to match our clients with the lending products they want, regardless of their credit.
A bad credit loan is a second chance for anyone looking for one. They are ideal for any and all credit-constrained Canadians looking to get their finances back on track so they can create a brighter and more stable financial future for themselves and their families.
Types Of Bad Credit Loans
You can get a bad credit loan for almost any item you may want to purchase or expense you may want to cover. Whether you want to purchase an expensive item like a TV, finance a car or cover some unexpected expense, you can get a bad credit loan to cover it.
Secured vs. Unsecured Personal Loans For Bad Credit
Secured Personal Loan – A secured personal loan requires you to put up an asset as collateral. Due to the additional security, this asset provides the lender, your chances of approval increase and you’ll likely receive a better rate. However, on the downside, if you default on your payments, your lender can seize your asset to recoup any payments lost.
Unsecured Personal Loan – An unsecured personal loan is just a basic installment loan that you repay over a certain period of time.
Drawbacks Of An Unsecured Bad Credit Personal Loan
Like any credit product, personal loans need to be managed properly to avoid a penalty. Every time you miss a payment, your lender will likely charge you a penalty fee and a higher interest rate. Since bad credit personal loans already come with higher interest rates than normal ones, your debt level might only get worse. Then, if you default for too long, after a certain point, your lender might even sell your debt to a collection agency. This, in turn, can lead to a court case and wage garnishment, if your debt is large enough to justify legal action.
What To Expect From An Unsecured Bad Credit Personal Loan
2.99 to 46.96%
0 – 50k
3 months to 120 months
No applications fees
Bad Credit Car Loans
Another in-demand credit product with bad credit borrowers is the bad credit car loan, which many subprime lenders also offer. These kinds of loans have become increasingly popular because of the wide range of automotive problems they can help fix. So, when applying for a car loan, bad credit borrowers will need to outline exactly what they intend to use it for. That could be anything from necessary repairs for their existing vehicle to acquiring the car’s title, to paying for the car itself from a private seller or a dealership.
Drawbacks To A Bad Credit Car Loan
Just like personal loans, problems arise when it comes to the interest rates and payments, which the borrower may end up struggling to deal with. Because the borrower has bad credit, once again their interest rate can end up being very high. These costs can land the borrower in even worse debt than they were before. Then, not only will they be in considerable debt, they may end up paying much more for their car than it’s actually worth. The debts that come with most car loans are also secured. If the borrower defaults for too long, the lender or dealership could seize the car as collateral.
Bad Credit: Payday Loans
Payday loans are the third most common type of unsecured bad credit loan. They’re aimed toward Canadians with poor credit, who need a relatively small amount of cash quickly, often $1,500 or less. These unsecured loans sound appealing because they are easy to acquire. In fact, they usually have instant approvals, making them attractive to those with an emergency financial situation on their hands. If a borrower needs a few hundred dollars to pay their rent, they can walk in off the street, get approved and walk out with the cash in a matter of hours.
Drawbacks To Payday Loans
That brings us to the most unfortunate drawback of all payday loans, the interest rate. Since payday loans are generally for small amounts, the way lenders make a profit is by charging extremely high-interest rates, sometimes as much as 500% APR (annual percentage rate). So, if you were to borrow that same few hundred dollars for rent, but didn’t manage to pay it back by the due date, you could be charged a huge amount in interest. As a result, you could end up paying hundreds of dollars more for what should have been a relatively small, one-time loan.
The Benefits Of A Bad Credit Loan
Of course, one of the biggest benefits of a bad credit loan is that anyone can get approved, so if you feel as though your past financial missteps are holding you back, a bad credit loan might be exactly what you’re looking for.
Easy online application. You can apply on your computer or smartphone from the comfort of your own home whenever it’s most convenient for you.
Manageable installment payments. You’ll be able to create a budget around your loan payments and know exactly when they are due.
Quick approval time. Because we’re based completely online, there are fewer steps and little to no paperwork which means you’ll get your money sooner.
High approval rate. Fewer restrictions and requirements mean that more Canadians get approved.
We work with an extensive referral network which means we can offer more Canadian more products and help them find exactly what they’re looking for, good credit, bad credit, any credit.
How To Get Approved For A Bad Credit Loan In Canada?
3 Simple Steps To Get A Bad Credit Loan
Step 1 – Review Your Finances
Before applying for a loan, you should get a copy of your credit report so you know where you stand with the lender. Lenders will look at your credit, your income level, debt level and your employment history to determine your credit worthiness. By analyzing your finances, you’ll be better prepared when applying for a loan. Moreover, it can help you choose a lender whose minimum requirements you meet.
Step 2 – Compare Lenders And Get A Quote
When choosing a lender, it’s a good idea to get a few loan quotes so that you can choose an offer with the best terms and conditions for you. To help you save time with your research you can use a loan comparison platform like Loans Canada. You simply have to fill out a single application to receive multiple quotes from different lenders.
Step 3 – Review Your Options And Get Funded
Once you know your options, you can accept the offer that works best with your financial situation. Do keep in mind that some lenders may require additional documents to complete the application. After you’re approved, you’ll receive your funds.
Documents Required For A Bad Credit Lender
When applying for a loan with any lender, there are certain documents you’ll need to provide, including:
Personal Information – Documents that prove your identity will be required. This may include a valid government-issued photo ID.
Employment Information – Your lender may require you to provide proof of employment, this may include a letter of employment or a paystub.
Financial Details – Your lender may also require you to provide a pay stub, bank statements or a tax return to verify your income and debt-to-income ratio.
Other Documents – If you’re applying for a car loan, you may also need to provide additional documents such as your driver’s license, proof of car purchase and title and registration papers (only for a car trade-in).
How To Improve Your Chances Of Getting A Bad Credit Loan?
There are a number of ways you can increase your chances of being approved for a bad credit loan. Here are 3 ways to increase your chances of getting a bad credit loan quickly in Canada:
Increase your income – Besides your credit, alternative lenders will look at your income to determine your eligibility. As such, getting a side hustle or extra part-time job can increase your chances of being approved.
Reducing your debt – Another important aspect your lender will look at is your debt to income ratio. If you can’t increase your income, look to eliminate as many debts as you can prior to applying.
Get a co-signer – The addition of a cosigner can help you secure a loan quickly. However, do be aware that if you default on your payments your co-signer will be held responsible for the payments.
Do instant bad credit personal loans exist in Canada?
Some of the more frequently seen products among bad-credit borrowers are bad credit personal loans. These unsecured bad credit personal loans can be used to cover almost any expense, such as home repairs/renovations, household supplies/groceries, etc. There are plenty of subprime lenders like easyfinancial who offer these instant unsecured bad credit personal loans. Bad credit personal loans function in more or less the same fashion as regular personal loans, in that they are installment-based
How does applying for a loan through Loans Canada help me?
At Loans Canada, we are committed to matching our clients with lenders they have a high chance of being approved with. Our system pairs you with lenders who accept applicants based on your financial situation and needs.
Can I get an instant bad credit unsecured personal loan in Canada?
One application with Loans Canada can get you quickly paired with a number of different lenders with whom you can get an unsecured personal loan. Whether you have bad credit or a low income, we can find you lenders that approve applicants based on your financial situation.
Can I get a loan with a credit score below 600?
Yes, you can still get a loan with a credit score below 600. However, your options will likely be limited to high-cost lenders like payday lenders. Instead of relying on a high-cost loan, it may be worth building your credit in order to find a loan with more affordable rates and terms.
What interest rate can I expect to get with bad credit?
Interest can vary heavily depending on the lender and your overall financial health. But generally, bad credit personal loan lenders will have rates that go as high as 60%. However, they cannot charge more than that as it is legally not allowed. However, the APR for payday loans can go as high as 600%.
Which Bad Credit Loan is Best For You?
In the end, which loan product you use for your bad credit situation is dependent on you and your particular financial position. If you’re interested in knowing what your bad credit loan options are, Loans Canada can help.
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