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When was the last time you checked your credit score? Are you up-to-date on where it stands right now?
Knowing about your credit score is important because it gives you some insight into how strong your credit profile is and how likely you’d be to secure various loans with ideal interest rates and terms. The higher your credit score, the better able you’ll be to secure quality credit products. But the lower your score, the more trouble you’ll have landing a loan.
That said, there are bad credit loans in Montreal that may be available to those who may otherwise be struggling to get approved for a conventional loan.
What is Bad Credit?
Obviously, bad credit simply means that you have a low credit score. So, what is considered a low credit score?
In Canada, credit scores range from 300 to 900 points. For the majority of lenders, anywhere between 620 and 680 is considered the average credit score, and anything below this range would make it more difficult to get approved for loan products.
Having a low credit score can affect different aspects of your daily life. Not only would bad credit make it more difficult to get approved for a mortgage or personal loan, but it can also make it harder to secure a cell phone contract, get a job, land an apartment, and get promoted. No matter what your particular financial priorities may be, having bad credit is never a good thing.
A number of important factors impact your credit score, including the following:
History of payments – Missed payments will have a negative impact on your score, while regular timely payments will help to improve it.
Credit utilization – It’s advised to spend no more than 30% of your credit card limit in order to keep your credit score healthy.
Credit length– Older credit accounts are considered a good thing for credit scores.
New inquiries – Applying for too many loans will place “hard inquiries” on your credit report, which can have a negative impact on your score.
Diversity – Having a diverse portfolio of credit accounts is a good thing for your credit.
Can You Get Approved For a Loan With Bad Credit?
Ideally, a high credit score is needed to secure a conventional loan with a low-interest rate. Bad credit can definitely get in the way of being approved for a traditional loan with a conventional lender.
That said, it’s still possible for bad credit borrowers to get approved for a loan whenever they have a pressing expense that needs to be covered but their current finances aren’t enough to make the payments. Bad credit loans in Montreal give borrowers with a low credit score the opportunity to get their hands on the much-needed funds required to pay for some of life’s big expenses.
So, what types of loans are available to those with bad credit?
No Credit Check Loans
Some lenders work exclusively with borrowers who have bad credit, and may not even check credit scores. For those with bad credit, this may be a great option to get approved for a loan despite their low credit score. In this case, the lender would place more weight on other factors associated with loan approval, including assets, income, and current financial behaviour.
If these factors are healthy, they may be enough to override your bad credit score. It should be noted, however, that these types of loans typically come with much higher interest rates than conventional loans.
For more information about no credit check loans in Canada, read this.
Many loans are considered unsecured, which means there is no collateral backing the loan. In these cases, lenders are placing themselves at greater risk because they have nothing of value to recoup should the borrower default on their loan. With secured loans, on the other hand, collateral is used to back up the loan.
That means if the borrower defaults on the loan payments, the lender can repossess the valuable asset that collateralized the loan in order to recoup their losses. Secured loans are usually easier to get approved for and don’t necessarily require the same type of credit score that unsecured loans would.
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 forfeited 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 raise 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.
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.
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, on average, 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.
Be Wary of Loan Scams
As helpful as bad credit loans Montreal may be, it’s extremely important to be watchful for any bad credit lenders who may be out there to scam unsuspecting borrowers. To spot a predatory lender, look out for the following red flags:
Asking for upfront fees or payments
Guaranteeing loan approval
Increasing Your Credit Score to Boost Odds of Loan Approval
While there are bad credit loans available, in Montreal, that consumers with a low credit score may be able to take advantage of, it’s much better to take measures to improve your credit score so that you can secure a conventional loan at a lower interest rate and better terms.
To improve your credit score, consider doing the following:
Pay all bills on time
Keep your credit card balances under 30% of your credit limit
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.
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 that will help you get the credit products you need, including Loans Canada.