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According to TransUnion, one of Canada’s two major credit bureaus, a loan applicant with a credit score of 650 or higher is more likely to get approved for a loan faster compared to someone with a lower rating. However, TransUnion also states that out of 28.4 million Canadians with active credit accounts, 11.9% are considered subprime. That’s close to 3.4 million Canadians with credit scores below average. Considering this high percentage of subprime borrowers in Canada, alternative lenders are gaining prominence by offering quick and easy loans at reasonable rates to people with less-than-perfect credit.
Everyone encounters unexpected expenses, but we’re not all fortunate enough to have a lot of savings to lean on when we need it. And if you have bad credit, it’s even harder to secure quick funds. But there are avenues open to you.
If you have a bad credit rating and you’re interested in getting a loan, the following information will help educate you on the different types of loans available to you and the easiest ways to get approved.
How to Borrow Money with Bad Credit
Just because you have bad credit doesn’t mean you can’t get a loan. Plus, borrowing money with bad credit has its advantages. If you have a poor credit history, a new loan can help rebuild credit if it’s paid off in full each month. Ensuring that you’re making regular payments on all of your debt will help you get better rates on loans in the future. Depending on the type of loan you get it can also diversify your credit mix which can also help increase your credit score. That being said, in order to start the credit rebuilding process, you first need to be approved for a loan. The following tips make it easier to borrow money with bad credit in Canada.
1. Apply With a Cosigner
Applying with a cosigner is a great way to increase your chances of getting approved for a loan with bad credit. Cosigners are typically close friends or family members with good credit who sign a loan on behalf of the borrower. Lenders calculate less risk with a cosigner since that person is also held responsible for repayments. Although applying with a cosigner isn’t an option for everyone, cosigners can substantially increase the chances that a would-be-borrower with bad credit will get approved.
If finding a cosigner isn’t a path you want to take, there are alternative options.
2. Apply for a Secured Loan
A secured loan is a form of borrowing that involves the applicant pledging an asset as collateral. A lot of the time, lenders will view applicants with bad credit as high risk. More often than not, an applicant who has a history of delinquencies, collections, consumer proposal, or bankruptcy marked on their credit profile will have a harder time getting approved for an unsecured loan—a loan backed with no collateral or guarantor.
For someone with bad credit, applying for a secured loan might be a good place to start, as lenders will feel safer approving an individual with bad credit knowing there is collateral attached. Once you’ve proven that you can consistently make payments on an unsecured loan, you’ll be approved for lower rates in the future.
When you have bad credit, it’s easier to get approved for a secured loan than an unsecured loan. But it is possible to get approved for an unsecured loan. We covered some key differences to help you decide the right option for you.
3. Shop and Compare Lenders
When you’re in the process of applying for a loan with bad credit, it’s worth taking the time to shop and compare different lenders that cater to bad credit applicants. Every lender offers different rates and monthly payments to individuals in bad credit situations. To ensure you’re getting the best deal possible, do some online research and inquire with alternative lenders until you get an offer that best fits your budget.
Searching for a personal loan can sometimes be stressful and time-consuming if you’ve never done it before. Spring Financial is an excellent place to start. We provide personal loans to Canadians facing all types of credit situations. The online application process is fast and simple to fill out, and applicants can be approved for a loan amount up to $35,000 in less than 24 hours. With no hidden fees, a 100% secure application and repayment terms varying from 9 to 60 months, Spring Financial is worth looking into.
The Difference Between Alternative Lenders and Banks
Unlike banks, which mostly cater to borrowers with better-than-average credit, alternative subprime lenders can work with bad credit applicants. Canadians with poor credit history might have a more difficult time getting approved for a loan at the bank. However, some alternative lending institutions specialize in helping Canadians with blemished credit reports. Alternative lenders are able to do this because they are more willing to take on risk than the banks who operate very conservatively.
Also, in comparison to the big banks, many alternative lenders are willing to look at more than just your credit file in order to issue an approval. They may consider your bank statements and spending habits as well as multiple sources of income instead of just employment income.
If you do get approved for a loan from a traditional bank, it might take some time. It might require several appointments and meetings. With many alternative lenders, such as Spring Financial, the approval process is faster and more efficient since everything is done online and over the phone.
As a consequence of working with so many customers with less-than-stellar credit, an alternative lender takes on more risk, so interest rates might be higher than banks. But alternative lenders provide access to much-needed funds and an opportunity to start rebuilding credit. The sooner a customer can start rebuilding credit again, the sooner they’ll enjoy access to lower interest loans.
Can I Get a No Credit Check Loan with Guaranteed Approval?
Banks will generally pull an applicant’s credit report when deciding whether or not a person can qualify for a loan. Since a customer’s credit history is the main criteria that can make or break a bank loan application, many bad credit customers turn to alternative lenders to borrow. Some alternative lending institutions are designed to work with bad credit customers. Some online lenders don’t even need to run a credit check and only require details like an applicant’s annual income, employment status, and overall debt load.
While some lenders legitimately offer “no credit check loans with guaranteed approval”, their financial products usually come with high interest rates and fees. Many lenders that guarantee loan approvals without credit checks are predatory. If you’re considering this type of loan, be sure to look out for the warning signs of a disreputable lender.
Payday Loans Vs. Instalment Loans
If you’re desperate for a bad credit loan, the words “payday loan” might loom at the back of your mind. Payday loan lenders offer a type of unsecured short-term loan that generally comes with incredibly high interest rates. The payback turnaround on a payday loan by the borrower is two weeks or less. If the payday loan isn’t paid back within the agreed time, the borrower can expect to owe high amounts in interest rates and added fees. Due to their sky-high interest rates and short turnaround times, payday loans can send a borrower into a vicious cycle of debt.
Compared to payday loans, installment loans are a better option for borrowers with low credit. Installment loans are typically larger than payday loans and can be paid back over a longer period of time. Installment loans have a fixed interest rate and repayment amount, which means that rates won’t fluctuate throughout the length of the loan. Read more about why installment loans are a better option than payday loans.
How to Get Your Finances Back on Track
Good money management doesn’t have to be complicated. There are small things you can do to restore your financial standing and make it even easier to get a loan in the future.
1. Track every dollar: The first step to getting your finances back on track is to understand where every dollar is going. It’s time to get frugal. If you’re new to the concept of money management, we suggest looking into the 50/30/20 rule as a good introduction. There are also budgeting apps that can help you keep track of your income and expenses. Set a savings goal for yourself and stick to a plan.
2. Steer clear of payday loans: You might be enticed by the idea of “quick cash” from a payday lender, but it’s a dangerous road to go down. You can expect an APR of up 599% and get trapped in a cycle of predatory debt.
3. Start paying off your debts: Start with your highest interest debt. If you can, pay a little extra every month to lower your credit utilization ratio and boost your credit score. If you’re currently shouldering debt and carrying balances on multiple accounts, you might want to consider consolidating your debts with a lower interest loan.
4. Know your credit score: Understand how vital a good credit score is and what you can do to improve it. If you have bad credit, rebuilding your credit score should be a primary focus.
Spring Makes Getting a Loan with Bad Credit Easy!
One thing you can do to consolidate your debts and build your credit at the same time is a personal instalment loan. Spring Financial specializes in helping Canadians with bad credit. We offer a faster, easier route to loans than traditional banks, and we’re a safer alternative to payday lenders. Applying for a personal loan with us could be your first step towards saying goodbye to debt and building a better financial future!
