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Bad credit loans in Canada
Unfortunately, a lot of Canadians have had issues with bad credit in the past decade. This was due to the economic crunch that hit North America in 2007 / 2008. It led to household debt and bad credit for a number of Canadian borrowers.
Bad credit prevents mainstream lenders from giving you credit. All the same bad credit loans in Canada has become popular. There are lenders willing to give bad credit loans in Canada and a number of lending institutions who offer loans to those with bad credit.
Despite the economic crunch, there are other factors that can cause a drop in someone’s credit score. These include bankruptcies and consumer proposals that they may have signed on to.
Finances can be unpredictable: today you’re up and the next day you are down. If you have savings to fall on you are in good business but sometimes even the savings will not be enough and that is where the problem is.
There are residents in Winnipeg who experience financial hardships in their daily lives. In Montreal, there are bad credit loans available for those who are having problems getting approved for conventional loans they have applied for. Also in Vancouver, there are loans for those with bad credit who have been turned away from traditional lenders.
Alternative lenders deal with those who have bad credit and may not follow the regulations of banks and conventional lenders.
Bad credit loans in Canada as an option for people, do not consider the credit score as stringently as the banks will. The most important factor is that you are employed with a source of income that will enable you to repay the loan.
What is a bad credit loan?
A bad credit loan is a loan made for borrowers whose credit score is below acceptable levels. If you have a credit score somewhere below 600 you may not have it easy applying for loans. Lenders will deem you as a high-risk individual and will not be willing to lend to you.
In spite of that, there are bad credit loans available for those who have bad credit scores. With bad credit loans, your credit score shouldn’t be something to worry about. The loan gets approved quick and you can begin to improve your credit when you pay back the loan as arranged between you and the lender.
How bad credit loans work
You will apply for bad credit loans just like any other loan but in this case, your credit will not be stringently considered because if it was good in the first place you would not end up at a bad credit lenders desk.
After applying, if you qualify the funds will be deposited into your bank account. You will then pay back the lender in installments over a period of time agreed on. By the time you are done with these payments, your credit score would have improved in order for you to get access to other financial products when you need them.
Conditions surrounding bad credit loans
• You are considered riskier when you have bad credit, therefore, you may have a higher interest rate attached to your loan.
• When you miss payments or default, it can damage your credit score.
• The option for you to adjust your payment conditions may not be easily available because of bad credit. This is unlike those with good credit who may be able to adjust their payment plan.
• You do not have to allow bad credit to cause you to make desperate measures to get loans. There are identity thieves and scam artists who may establish fake companies to deceive you to sign on to their services. Therefore it is advisable to always research on the bad credit lender you are applying to properly.
How bad credit starts
– Damages from delinquencies ( consumer proposals, bankruptcies)
– High credit utilization ratio
– Hard credit inquiries
– Defaulted payments
Some questions to ask yourself before taking a bad credit loan in Canada
1. What is the annual interest rate
You would have to find out what the interest rate of the bad credit loan is. This differs from province to province but the most important thing is to know what you can afford.
This will prevent you from having more debts added on to what you already have. Paying attention to the full cost of borrowing the loan for a year (APR) is important in letting you know how much you are to pay for the amount borrowed.
If you find out that the traditional lenders have expensive rates you can opt for credit unions. They offer Payday Alternative Loans that have interest rates of a maximum of 28%.
2. Is the loan amortizing
When you are paying back the Loans the interest is not charged on a single basis but rather accumulates the interest over time. This means that as you pay off the principal, the loan will accrue less interest.
Also, it will help you to save overall if you are able to pay the loan early if you don’t have prepayment penalties. Amortization ensures payments go to the principal and the interest, which is perfect to help borrowers come out of debt. Some other short-term bad credit loans charge flat fee interest rates and roll over periods that can leave borrowers trapped in a debt cycle.
Amortization is key if you are taking out bad credit loans. In Canada, the amortization rate for mortgages, for instance, stands at a standard 25 years, sometimes it rises to 35 years and in exceptional cases, 40 years.
3. Are the payments affordable?
The shorter the term for you to pay back, the likelihood of default. Its estimated in a study that payday loan borrowers spend an average of 200 days in debt. The high interest rates on bad credit loans require extra effort before payments can be made.
So before you go in for them you have to be able to ask whether you will be able to meet the payment terms before you sign on for a bad credit loan. Bad credit loans paid in installments can sometimes prove more expensive when the overall interest is calculated.
The most important thing is that smaller payments spread over a period that you can afford are better than paying huge sums of money within a short time that you are likely to default on.
4. Are they concerned about my ability to repay
Bad credit loans in Canada are not characterized by hard credit checks before the loan is given. This is because the people applying for bad credit loans already have low credit. As a borrower, you must be concerned if bad credit lenders are not creating an avenue that is easy for you to repay your loans.
There’s a difference between no credit checks and not checking whether the borrower can afford the loan in the first place. A silent lender means they don’t want you to repay so they get more interest. The most important thing for bad credit borrowers will be that lender’s are concerned about their ability to pay.
No one wants to dig into deeper financial debt and being worse off than they started.
Factors that bad credit lenders consider when giving bad credit loans in Canada
Even though it’s true that these lenders have fewer checks on those with bad credit scores, there are still some checks that lenders consider before giving out such loans.
The fact is, there are bad credit lenders who give loans to those with poor credit. Nonetheless, lenders will still want to know the actual credit score of those who apply for loans from them. This will determine their eligibility for bad credit loans by assessing their credit score.
Bad credit lenders will request a credit report from a credit bureau. What differentiates bad credit lenders and traditional lenders is that low credit scores do mean outright rejection of a loan application by traditional lenders. Bad credit lenders will, however, look at how the borrower has handled their finances.
Bad credit lenders in Canada check on applicants employment history. They want to know if the borrower is financially stable. This includes checking on how long the person has been employed where they currently work as well as the status of their employment.
They’ll look into whether the employee is full-time, part-time, permanent or a contract worker. A permanent employee, for instance, will be considered more stable than a part-time employee or contract worker.
Recent credit history
The most recent credit history of the applicant who wants bad credit loans in Canada will be requested. This is to help lenders know how the individual has dealt with credit in the past. It will also bring to light any irresponsible past lending behavior of those applying for bad credit loans.
What bad credit lenders want is a close to perfect payment history for rent, mortgages or credit card bills, utility bills that the individual may have had in past years.
These refer to the assets that a borrower has. They include monies in banks, real estate, bonds, mutual funds, and other financial assets.
Monthly net income
The amount of money the borrower has after deducting their debt from their income is also considered. The higher the net income, it means the borrower will have more money at hand to deal with other obligations. The lower the monthly net income the lesser the disposable income. This will prove that the individual may not be able to pay for the loan.
Is a bad credit loan right for any individual?
Bad credit loans are a great option because bad credit lenders work closely with those who have a bad credit rating in order for them to get the loans that they need. When traditional lenders fail to give you a loan because of bad credit, there are bad credit loans available.
Nevertheless, there are some who also due to some pitfalls may not apply for bad credit loans. Some other people also may not consider bad credit loans right for them because there are scammers who pose as bad credit lenders.
These scammers pounce on unsuspecting individuals and make their financial situation worse. The reason why some borrowers fall for these scammers is that they have bad credit need fast access to cash.
The predatory lenders will, therefore, capitalize on this and offer high interest rates. Such situations are common with payday loans in Ontario. It is advised to look for reputable lenders to deal with.
Bad credit loans generally have higher interest rates due to the risk associated with it. The lender considers being more at risk because he may be lending to someone who is not offering security and will, therefore, charge high interest rates.
Causes Of Bad Credit
In Toronto, as well as the rest of Canada, the credit score ranges from 300 to 900. Anything below 500 is considered bad credit. Sometimes, through no fault of yours, you encounter difficulty in dealing with your debt. Below are some of the factors that cause people to have bad credit and opt for bad credit loans in Canada.
Short, late or missing payments
Bad credit is caused by paying less, paying late or missing altogether the payments that you have to make towards your loan. Anytime this happens, your credit drops. Once you continue on this path and do not render an explanation to your lender you’ll end up having bad credit sooner or later.
Having a lot of outstanding debt
When you have a high credit utilization ratio on your revolving debt it can also cause you to have bad credit. Revolving credit products such as credit cards or line of credit come with a limit to the amount you can draw. The more you pay off what you take, the more you qualify for more.
What the individual forgets is that if your utilization ratio is high the limit of credit you can use decreases and that affects your credit score. It is advised that you use less than 30% of the available credit on financial products that have revolving debt so that your credit score will not be affected.
Applying for many new credit products.
Having a diversity of credit products is good for the credit score only if it’s being handled well. The problem is in applying for too many new credits within weeks or months. It makes you appear desperate and can sometimes mean you are not responsible enough with debt.
What happens is that if the lender has a look at your credit before assessing your application, a hard credit inquiry appears on your credit report. Hard credit inquiry decreases your credit score and remains on your credit report for a long time. Soft credit checks do not appear on your credit report to paint a picture of irresponsibility on your credit report.
It’s better to check your credit score before applying for credit products. It helps you to know which loan options you qualify for.
Injuries or medical issues that prevent work.
Sometimes, you can injure yourself or develop a medical condition that affects your debt payments. When this happens, you are not able to pay up your monthly debts as you should because your disposable income is now paying for medical and other health bills. This can cause you to default in your loan repayments.
In 2016, a single individual with an average income of $42,914 paid $4,257 for their public healthcare insurance. The average Canadian family of 2 adults and 2 children earning $122,100 paid about $11,494 for their healthcare.
Credit damage caused by fraud or identity theft.
Activities of frauds and identity theft can also rake up bad credit for individuals. This is because you are not aware they make purchases in your name. Within a short time, your lenders will be calling you that you have maxed out your credit. These fraudsters may not be in the same location as you and hence you have to track them. This can bring a lot of distress to the individual.
Loss of employment
Having a verifiable source of income is one of the main requirements for getting bad credit loans in Canada and elsewhere. The moment your employment is affected so is your income and then your ability to repay your debts. This will inevitably cause you to have a bad credit score.
Types of bad credit loans in Canada you can get
There’s a possibility for those with bad credit to get approval for their loans. Below are some of the bad credit loans in Canada that can be applied for.
• Unsecured bad credit loans
Unsecured bad credit loans do not require lenders to place collaterals before they get the loans they need. The only request from the lender is a contract that is signed with a promise to pay back the money owed. Should in case the borrower defaults the lender may go through a collection agency to get the funds back.
• Secured bad credit Loans
You get easily approved for secured bad credit loans in Canada because the risk involved in lending to you is lower. Secured loans can be either personal, short-term or installment plan. Having bad credit automatically calls for raised interest rates attached to the loans.
The moment you choose to go in for a secured loan, the collateral makes it possible for you to pay lower interest rates which you can afford. With an installment type of secured loans, it tends to be more flexible because you have enough time to plan your payments.
When it’s a short-term secured loan, you are likely to pay a higher interest rate. This is because the time of repayment is short as compared to long-term secured loans.
• Guarantor loans
Another means of getting bad credit loans in Canada is by going in for cosigner or guarantor. The co-signer should be someone who can take up your loan payments in case you default at a point in time.
You can use this type of loan to get some money if you have been severally rejected or you are not able to provide collateral for the loan you are going in for. You can also go in for a guarantor loan if you don’t want your credit to be checked for personal reasons.
• Bad credit loans
You can also go in for bad credit loans from lenders who have specialized in giving loans to those with bad credit. In Montreal for instance, you can still get bad credit loans even with low credit. It gives borrowers the opportunity to access the needed funds for their expenses. Once you begin to make prompt payments your credit score will also improve.
• No-credit check loans
It’s possible to get no-credit-check loans with bad credit. No credit check loans is an opportunity for those with bad credit scores to get a loan. The lender mainly considers the borrower’s assets, their income, and their current financial state.
Once these factors are healthy, the credit score may not be considered. What to remember is that this type of loans has high interest rates than the other traditional loans.
How to improve your bad credit
Pay Bills on time
The rule here is if you can’t pay in full, you should be able to make the minimum payment.
Ensure that credit card balance is at a minimum – You are expected to use less than 30% of the available credit if you are to maintain your credit in good standing.
Pay down bills
Some bills like bankruptcy and consumer proposal bills should be paid down so that it can reflect positively on the overall credit report.
Check for errors
You should check your credit report for any mistakes. Any mistakes detected should be reported to the credit bureau for it to be to be rectified. Any error that is overlooked can affect your credit report in the long-run.
Apply for secured credit cards
Secured credit cards give you the opportunity to apply for credit cards with collateral. Thus if you place $1000 into the account, you can have the credit up to $1000. If you are able to keep your payments, you can add to the deposits or extend your credit. The bank can sometimes allow you to add to your credit without additional payments on deposits.
Bad credit loans in Canada are available to those who need them. Once you get a good lender who will not conduct hard credit checks on your credit report, you can be assured of getting a loan. Bad credit loans are an alternative when traditional lenders fail. It enables borrowers to take what they can afford without getting worse off into debt.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.