What Is a Bad Credit Loan?
A bad credit loan is a short financial solution for anyone with a poor credit score or no credit. For example, Canadian loans for bad credit can consolidate credit card debt, pay off medical expenses, pay utilities that are due, or satisfy an emergency expense.
What Is Considered a Poor Credit Score?
A poor credit score falls between 300 and 574, with the credit rating going as high as 900 for excellent credit. Both reporting agencies, Equifax and TransUnion, have algorithms to calculate your credit. However, a low score is a low score, no matter which bureau is figuring the rating. A poor credit score can hinder you from getting a job, renting an apartment, buying a home, or getting a lower-interest credit card.
Why Your Credit Score Drops
Your credit score can decrease for the following reasons:
- You miss your regular monthly payments or have several delinquencies. Therefore, it is always important to make your payments on time to rebuild your credit.
- You default on a loan.
- You file bankruptcy.
You should regularly check your credit report from Equifax and TransUnion to ensure it does not contain mistakes. Dispute any errors on your report, as doing so can help raise your score.
Types of Bad Credit Loans Featured Online
You may think you are limited if you have bad credit. However, bad credit loans and no credit loans are available in Canada. These easy loans, which you can get online, make it possible for you to apply just about any time. There are even guaranteed approval loans for poor credit borrowers featured by some lenders. You have several options concerning the types of loans too.
For example, bad credit loans can cover:
- Car loans for people with bad credit
- Payday loan bad credit products
- Installment loans for bad credit
- Emergency personal loans for bad credit
- Disability loans no credit check
Secured and Unsecured Loans
Bad credit loans may be classified as secured loans or unsecured loans. However, most online loans for bad credit fall under the category of unsecured. Collateral is an asset that can be seized if the borrower cannot repay the loan or default. Because the risk of borrowing is reduced, these loans for bad credit feature a lower interest rate.
Therefore, if you choose to take out loans for poor credit, such as a car loan, car title loan, or HELOC (home equity line of credit), you need to be sure that you can pay the loan back. Otherwise, you can lose your property.
This is not something you can take lightly. If you get a bad credit secured loan, you have to be sure that you can handle the financial arrangement. Guaranteed approval loans for poor credit, or unsecured loans, may come with a higher interest rate, but, at least, you won’t lose an asset or collateral attached to the financing.
Qualifying for Loans with Bad Credit
Before you get a loan with bad credit, you need to know what to expect. While your credit may not be stellar, you still need to show the following:
- You are a resident of one of the Canadian provinces
- You have some form of identification, such as a driver’s license and S.I.N. card
- You are at least 18 years of age
- You have a specific reason for taking out loans for poor credit
- You have a recent pay stub or can show proof of a current income
- Your debt-to-income ratio (DTI) is reasonable (You should have sufficient income to handle your current debt)
Also, you will need to answer some questions from the lender. Some of the other factors considered in obtaining loans for poor credit include:
- The borrower’s monthly or yearly earnings
- Whether the borrower is self-employed or employed and the size of the company where they work
- If the borrower has someone who can cosign the loan
- Whether or not the applicant is currently going through a bankruptcy
- How much debt the borrower can afford
Having a cosigner can get you approved for guaranteed approval loans for poor credit, as a cosigner can take over the borrower’s debt should they default on the loan. A cosigner should be willing to pay the loan should the applicant fall behind. They should have good to excellent credit and history that demonstrates responsible payers. They should prove that he has not missed any payments, has not filed bankruptcy or ran into trouble with paying off loans.
What Happens When You Apply for Loans for Bad Credit
When you apply for personal loans for bad credit, the lender will still check and confirm your credit score. While no lenders advertise they offer no credit check loans, such as secured loan lenders who provide car title loans, most still run a credit check. They do this to confirm the credit rating to see where they stand concerning the amount borrowed and interest they can charge. The lower your credit score, the higher the APR. Also, you will qualify for a lower loan amount if your credit score is poor.
Checking the Credit History
When checking the credit score, lenders that offer loans for poor credit also check your credit history. The credit history shows:
- Whether or not you declared bankruptcy in the recent past
- If you have defaulted on a debt
- The number of missed payments you have
Unfortunately, most Canadian banks will not approve loans for poor credit. Instead, you need to seek funding from one of the lenders who feature online loans for bad credit on the Internet.
Benefits and Drawbacks of Loans for Bad Credit in Canada
While there is a negative connotation associated with bad credit loans, they also offer several benefits to Canadians who have fallen behind on past payments. Some of these advantages and Drawbacks mentioned below:
- Rebuild their poor credit rating – Borrowers can slowly increase their credit score by making repayments in full and promptly. After borrowers meet their payment obligations on loans for poor credit, they can apply for unsecured credit cards and receive better mortgage rates and APRs on vehicle financing.
- Get some deals on interest – Loans for people with bad credit come with higher-than-normal interest rates. However, some lenders specializing in bad credit loans will offer some deals along these lines. One word of caution: Watch out for payday loans for bad credit, as their interest rates can be excessive, if not predatory.
- Borrow a larger loan amount – Some personal loans for bad credit allow for borrowers to receive a large amount of money in a short timeframe. For instance, bad credit loans enable you to borrow several thousand dollars at one time to consolidate credit card debt, manage an emergency, such as a home repair or car breakdown, or buy a big-ticket item, such as an appliance.
- Higher-than-high interest rates – Some lenders charge extortionary rates to consumers – rates that make it impossible to pay the loan amount back. These predatory lenders also do not report the payments to the major credit reporting agencies.
- Hidden fees – Always read your loan contract before signing it. Doing so will prevent you from paying hidden fees.
- Penalties – Check to see what penalties you may be assessed for missing a payment or if you need to make a late payment. You should also see if you will get penalized for paying off your loan early.
- The lender’s credit reporting practices – If you are repaying a loan, the activity should go on record. Make sure the payments for the funding will be reported to the major credit bureaus in Canada.
How to Apply for a Bad Credit Loan
Before you apply for a bad credit loan, you need to:
- Check your credit rating and score. Dispute any inaccuracies in your report.
- Review bad credit loans with instant approval or loans online with no credit check.
- Gather the needed info – driver’s license, recent pay stubs, address and contact information.
- Narrow your choices by choosing those lenders who specialize in your lending needs. For example, if you wish to learn more about bad credit loans with guaranteed approval and monthly payments, review the lenders who offer these products.
- Show proof of employment or have the money to pay back the loan.
4 Tips and Best Practices for Obtaining Bad Credit Loans
1. Never borrow more money than you need. While the temptation may be there, borrowing more than what you need can sink you further into debt and keep you from rebuilding your credit. This can turn into an endless cycle of debt.
2. Make sure the lender has a good reputation online. Read the reviews.
3. Always review your loan document carefully. Never sign a loan agreement with hidden fees or penalties for early payment.
4. Always choose the lower interest rate. Even if bad credit loans have higher interest rates, some lenders offer lower rates than others.
Frequently asked questions
How long will it take to get funding for loans for bad credit?
Once approved, you can have funds deposited electronically in your bank account the following day.
What is the maximum amount I can get with bad credit?
What you receive in a loan amount will depend on the type of loan, the reason for borrowing, your credit score, and what you can afford to pay back. Loans can range from $300 to $5,000 for personal loans, or as much as $100,000 for bad credit lines of credit.
Can I receive a bad credit loan if I have a previous bankruptcy on my record?
Yes, you can get a loan with bad credit even if you have a bankruptcy. However, for you to do so, you need to go through a lender that is willing to work with borrowers who have had bankruptcies.
Do I need to provide a down payment for bad credit loans?
Since most bad credit loans are personal and unsecured, you do not need a down payment. Down payments are only needed for mortgages.
What happens if I don't pay in time?
If you miss a payment on bad credit loans, it will be recorded on your credit report. That is why it is vital, when you take out a loan, that you are assured you can pay it back in regular monthly installments.
Can I trust lenders offering no credit checks or guaranteed approval?
Not all bad credit lenders are trustworthy. Therefore, check out a company’s rating with the Better Business Bureau (BBB) and read the review of what consumers say about a lender.
If you have poor credit or no credit, don’t despair. You can rebuild your credit. If you need to get a loan with bad credit, review lenders online to see which company is the best match for your loan needs. Online loans for bad credit make it possible for you to improve your lifestyle and add to your opportunities in life. As long as you responsibly pay the debt back, you can significantly make a difference in your financial situation.