Do you have bad credit? Bad credit can make it extremely challenging to get a conventional loan from a traditional lender. However, that doesn’t mean that you can’t get a loan at all. In fact, there are lenders out there who specialize in loans for consumers with bad credit. These bad credit lenders offer loans to those with bad credit by assessing their creditworthiness using unconventional methods. Find out what are the personal loan eligibility requirements for bad credit lenders.
The following factors are looked at by bad credit lenders when assessing borrowers’ ability to secure a loan:
Even though there are bad credit lenders who loan out money to consumers with poor credit, they will still want to know your actual score. As such, one of the factors that will come into play when assessing a borrower’s loan eligibility is their credit score. Bad credit lenders will typically look at how borrowers tend to handle their finances, rather than placing so much focus on the credit score itself.
While previous mistakes may have caused your credit scores to drop, bad credit lenders may put more emphasis on your more recent credit history. As such, if you’ve been recently making an effort to improve things your lender may take that into consideration. Ideally, your lender will want to see a solid payment history in terms of a borrower’s financial obligations, such as mortgage payments or rent, credit card bills, and utility bills over the past couple of years. All of this may still hold a lot of weight in the loan application process.
When done responsibly, these four techniques can help gradually increase your credit score:
Your income level will always play a vital role during the lender’s underwriting process. Generally, the higher your income level, the higher the chances of getting approved for a loan. Lenders will assess your income in order to calculate how much you can borrow without being overwhelmed by debt.
When you apply for credit, lenders will assess your income and debts. They’ll use income and debt to calculate your debt-to-income ratio, which is the percentage of your monthly income that you have to use to pay off your monthly debts.
Most lenders want to see a DTI ratio of no more than 30% – 36%, however, some lenders accept ratios as high as 50%.
Before you apply for a bad credit loan, remember to pay off or reduce as many of your unpaid debts as possible. Start with any debts that are overdue, then work your way down to the largest and highest-interest ones to improve your debt-to-income ratio.
Since bad credit lenders don’t place as much focus on credit scores, they’ll want to make sure that you are financially stable. As such, they will want to look at your employment history. Lenders will look at how long you’ve been employed with your current company and what your status is with your employer. For instance, are you a full-time, permanent employee, a part-time employee or a contract worker? A full-time permanent employee will seem more financially stable than the other two positions.
The more security you can offer your lender, the easier it is to qualify for a loan, especially if you have bad credit. That’s why some lenders will inspect your liquid assets when you apply in order to see if you have the means to repay your loan in the event your wages are cut due to job loss, illness or any other reason.
Since liquid assets can be converted to fast cash and used to cover your payments following a financial emergency, bad credit lenders might be more willing to approve you for a decent loan and interest rate if you have some to offer.
Lenders may also ask for security in the form of collateral, which they’ll then use to ‘secure’ your loan. Collateral must be a valuable fixed asset, like your car or house. If you miss too many payments, the lender can seize the asset to recover their losses.
When you take out a mortgage or car loan, the house and car act as collateral for the loan. As such, you don’t have to offer any collateral to secure these kinds of loans. However, if you’d like to get a secured personal loan, you’ll have to offer an asset of value to secure it. This can include your car, house or stocks.
As mentioned, adding collateral can help you qualify for better loans and interest rates because it offers the lender security if you default on the loan.
Lenders may assess your cosigner’s creditworthiness if you apply for a co-signed loan. A cosigner acts as loan security for your lender because they’re agreeing to take over your loan payments when you can’t afford them. This helps make you more creditworthy, leading to better loan rates and conditions.
Ideally, your co-signer should be a trusted family member or friend with a good credit score, stable income and reasonable debt levels. They must also know about the potential consequences of being a cosigner. If they become responsible for your loan, missing payments could damage both of your credit profiles.
If you’re applying for a car loan or mortgage, your lender will consider the amount you put down when assessing your creditworthiness. The larger your down payment is, the easier it will be to qualify for an appealing loan as it reduces the total loan amount owed.
Saving for a down payment can be difficult, especially if you’re looking to put down 20% or more on a house. The best way to get started is by building your savings account and stashing away any spare cash you earn from tax refunds or windfalls.
In Canada, bad credit loans are usually available through “alternative” lenders. These are private businesses that operate outside of traditional financial institutions, like banks and credit unions. So, they’re not as bound by provincial or federal restrictions and can set easier requirements for their loans, including the potential acceptance of bad credit.
While rates and conditions vary from lender to lender, private loans function similarly to bank loans. However, bad credit lenders may charge higher interest rates to compensate for the extra risk they’re taking (by approving less creditworthy borrowers).
| Amount | APR | Term (months) | Type of Loan | ||
 | Up to $35,000 | 26.99% - 39.99% | 6 - 60 | Secured & unsecured | More Info |
 | Up to $15,000 | 29.99% - 46.96% | 9 - 60 | Personal loan | More Info |
 | $5,000 - $35,000 | 5.9% - 45.9% | 12 - 60 | Personal loan | More Info |
 | $1,000 -$35,000 | 5.99% - 29.19% | 36 - 60 | Persona loan | More Info |
 | Up to $5,000 | 19.9% - 45.9% | 3 - 36 | Personal loan | More Info |
 | Up to $10,000 | 43% | 36 - 60 | Guarantor loan | More Info |
 | Up to $3,000 | 22% - 35% | 3 - 4 | Installment loan | More Info |
 | $1,600 - $25,000 | 9.47% - 20.07% | 36 - 60 | Secured Savings Loan | More Info |
 | Up to $20,000 | 19.44% - 31.90% | 36 - 84 | Consumer Proposal Exit Loan | More Info |
Although your lender might have other requirements, most bad credit loan providers will ask you for copies of these documents when you apply:
If you’re applying for a car loan, your lender may have to verify some extra documents and details about your car before they let you buy it, including:
If you have a bad credit score and are having trouble getting approved for a conventional loan with a traditional lender, you have the option to deal with a bad credit lender. These particular lenders work closely with borrowers who have poor credit, in order to help them find a loan option that they feel comfortable with.
Then again, bad credit loans can have their own set of pitfalls that borrowers should be aware of before applying for one:
Generally speaking, interest rates attached to bad credit loans are higher than those with traditional loans. Bad credit lenders charge a higher rate because the risk is considered to be much larger with these types of unsecured loans.
While there are plenty of legitimate bad credit lenders out there, there are also those who are simply looking to scam unsuspecting borrowers. If you’re not careful, you could wind up in a worse financial position than you were in before taking out the loan. That’s why it’s so important to do your homework to make sure you’re dealing with a reputable lender.
It’s easy to get stuck in a financial rut if you continue to take out loans to cover expenses. The best way to avoid this is by making all loan payments on time, or else the cycle of debt is sure to continue.
Basically, a bad credit loan is designed for borrowers who have sub-par credit scores, which is generally anything under 600. If you have a bad credit score, you will be considered a high-risk borrower to traditional lenders because your score essentially reflects the likelihood that you’ll make your payments on time. As such, getting approved for a traditional loan would prove to be very difficult.
A bad credit loan is a loan that is extended to borrowers who have a bad credit score. The advantages of a bad credit loan are obvious:
Bad credit loans offer borrowers with poor credit scores an option when traditional lenders are not an option. If you’re responsible with your money and have found a reputable bad credit lender, taking out one of these types of loans can give you the financial help you need without making things worse.
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Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.
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