It can be challenging to get a loan if you have bad credit. A recent study showed that over 17% of all Canadians have a credit score below 620, which is considered a bad credit score. This means that nearly 1 in 5 Canadians could be looking for bad credit loans at some point in their life.
However, while this can make getting a personal loan more challenging, it doesn’t mean there are no options. Some lenders will still approve a loan for someone with credit issues, but they may be more expensive or have special terms.
This article will explain how you get a loan, even if you have bad credit. We will also share some tips on making the process easier and explain what you can do to improve the odds of getting approved.
Ready to get started? Let’s begin with the fastest way to tell if you have bad credit: your credit score.
What is a credit score?
Your credit score is a number that represents your creditworthiness. It is based on your borrowing and repayment history and other factors like your total debt load.
A high credit score means you’re a low-risk borrower, making you more likely to get approved for a loan and get better terms (like a lower interest rate).
On the other hand, a low credit score means you’re a high-risk borrower, which makes it harder to get approved and could result in having to pay a higher interest rate.
What is “bad credit”?
There is no official definition of bad credit, but generally speaking, it refers to having a credit score below 620. This is considered subprime territory and can make it challenging to get approved for a loan.
What is a “good” credit score?
A good credit score is anything above 700. This means you’re a low-risk borrower, making it easier to get approved for a loan and could result in better terms (like a lower interest rate).
What is the minimum credit score for a loan?
There is no minimum credit score required to get a loan, but lenders will typically only approve borrowers with a score of 620 or higher.
If you have bad credit, some lenders may be willing to work with you, but they will likely charge a higher interest rate and may require collateral (like a car or home).
How do I know if I have bad credit?
There are many symptoms of bad credit, but one of the biggest is that you frequently get turned down for credit (i.e., personal loans, secured loans, car loans, etc.) or services (cell phone plans, store credit, etc.). Once you suspect you may have a credit issue, you need to check your report with a credit bureau.
What is a credit bureau?
A credit bureau is an organization that keeps track of your borrowing and repayment history. This information is used to generate your credit score, which is a number that represents your creditworthiness.
There are two major credit reporting agencies in Canada: Equifax and TransUnion. You are entitled to one free credit report from each bureau every year.
How can I get my credit score?
There are a few ways to get your free credit score. You can
- Visit the website of either Equifax or TransUnion
- Call the customer service number listed on their website
- Mail in a request form (available on their website)
Once you have your credit report, you can look for specific items that can cause your credit score to go down.
What problems should I look for in my credit report?
Once you have access to your report, take a look at the types of things impacting your credit score. They include:
Late payments
If you have missed a payment or been late on one, this will cause your credit score to go down. Keeping up with your payments on secured and unsecured personal loans is the best way to maintain a solid credit history.
Missed payments
Missing a loan payment (or multiple payments) is worse for your credit report than just being late. While late payments indicate you may be in financial trouble, missing payments signal that you are a credit risk to loan companies. Try to avoid missing payments at all costs.
Debt overload
If you have too much debt compared to your income, this can negatively impact your credit score. Most lenders will look at your debt-to-income ratio as a factor to decide whether you are creditworthy. Too much debt will make it harder to get a loan, including a bad credit loan.
Credit utilization ratio
This is the percentage of your total credit limit that you are currently using across all your loans. This includes secured loans (like mortgages and car loans) and unsecured loans (like online and payday loans). If this ratio gets too high, it can negatively affect your credit score.
Length of credit history
The longer you’ve had a credit history, the better it is for your credit score. If you are young and haven’t built up a long credit history or haven’t previously had much credit, this can drag down your score. While this is hard to fix, starting with a small personal loan from a provider like SkyCap can help you establish credit and demonstrate a positive repayment history.
Credit Mix
Having a mix of different types of credit (e.g., credit card, personal loan, car loan, etc.) is good for your credit score. However, if you have debt concentration in areas that are not ideal (payday loans, bad credit loans, etc.), it can hurt your credit report.
So my credit report is a problem. How can I get a bad credit loan?
Even if your credit report is not perfect, you may still be able to get a bad credit loan from a reputable Canadian lender. Bad credit loans are personal loans specifically for people with bad credit who need to borrow money. Several companies in Canada offer bad credit loans to help you get the cash you need.
When considering a bad credit loan, do your research and compare different options. Be aware of the interest rates and fees associated with each loan, and make sure you can afford the payments before you take out the loan.
What types of loans are available to borrowers with bad credit?
Your options can be limited if you are looking for a bad credit loan. Getting a loan from a big bank, credit union, or other traditional lenders may be challenging.
That said, there will always be options for people with poor credit scores.
Online personal loans
Several financial service providers offer bad credit loans to Canadians. These firms specialize in building installment loan products that will get quick cash into your bank account and help you avoid payday loans and other risky options.
SkyCap specializes in this type of loan. If you are looking for an unsecured loan with a quick approval, you can apply on our application page.
Secured loans
A secured loan is a type of loan that uses your property as collateral. While this is technically an option, it’s a risky choice as defaulting on your loan may cause you to lose your home or vehicle.
It’s also worth noting that the interest rates offered to people with bad credit will be higher than those for other borrowers.
Payday loans
These types of loans should be an option of last resort. Certain unethical payday lenders can charge very high-interest rates that can make it nearly impossible to pay back. Proceed with caution.
What types of lenders offer bad credit loans?
Several companies in Canada can help you get the money you need through a bad credit loan. Most of these are typically alternative lenders that specialize in this specific area.
If you were looking for these types of loans in the past, you might have to go to a more seedy area of town and look for less reputable lenders. However, that’s not the case today.
Now, it’s easier than ever to find lenders offering bad credit loans with a simple online search.
As we mentioned earlier in this post, we at SkyCap specialize in this area and can help people with poor credit get short-term loans quickly. If you have a bad credit score and need a loan, please check out our application page.
However, there are other options you may come across when looking for bad credit loans in Canada. Be sure to do your research when looking at different financial institutions that could offer you an unsecured personal loan.
What do I need to apply for bad credit loans?
While each provider of bad credit loans will have its own set of qualifications, there are a few general things that you will likely need to meet to qualify for a bad credit loan:
- Be at least 18 years old
- Be a Canadian citizen or permanent resident
- Have proof of income with an active bank account
- Have a valid phone number and email address
- A minimum credit score requirement
Before you apply, make sure you have the basic information they will require to make the process quick and easy.
Final thoughts
If you’re looking for a bad credit loan, there are several companies that can help. However, it’s essential to research before choosing a lender, as interest rates and fees can vary. Make sure you can afford the payments on the loan before taking out the money.
If you want to cut your research short and get your application started, reach out to us and start an application. Bad credit loans are our specialty, and we will help get you set up with reasonable monthly payments as quickly as possible.
