Getting a loan after a personal financial crisis may seem like it’s impossible. If you have had to file bankruptcy or experienced a personal crisis that hit you hard financially, you probably feel like there’s nowhere in Canada to turn for a loan. The good news, though, is that you’re wrong! You actually have a multitude of options for bad credit loans in Canada.
How is it possible?
As you do your research on loans, you will find that there are plenty of available loans for people with bad credit. There are some lenders who are more willing than others to take a chance on bad credit personal loans. There are also different types of bad credit loans that reduce the risk for the lender, rendering them more willing to loan you the money you need.
You may be new to Canada and trying to make your way without an established credit history in this country. Or you may have gotten overwhelmed by a medical or other crisis that constricted your finances and caused your credit score to drop drastically. In either case, you might be desperately in need of funds to get you back on your feet—and all that at a time when it seems hardest to qualify for a loan.
That’s why bad credit personal loans are the answer for you. They are designed specifically for people in your situation, and some of them even have guaranteed acceptance. You may find that the interest rate is higher or the conditions different than they would be if you had better credit, but the fact remains that you can get a loan!
You will find that loans for bad credit come in many shapes and sizes. Here’s a basic break-down to help you navigate the confusing landscape of loans!
Secured Personal Loans
A secured loan is one that lets you offer an asset as collateral, essentially pledging that asset to the lender as assurance that you will pay back the loan. Common secured loans include car loans (for which the car itself is the pledged asset) and mortgages (for which the home is the promised item).
Secured loans come in all shapes and sizes, from the pawn-shop transaction (in which your pawned property is held as assurance on the loan) to purchasing a house. If you already own your home, you might be able to take out a second mortgage against the equity you have in the home. You might be able to take out a line of credit against property you own. If you aren’t a home-owner, you can consider taking out a loan against the title of your car, or even pawning a valuable asset like a firearm or jewelry.
Unsecured Personal Loans
An unsecured personal loan differs from the secured loan in the fact that it lacks collateral. If your credit is poor, you are less likely to qualify for an unsecured loan because the lender will consider you a greater risk, and will most likely want collateral to back the loaned money.
One unsecured loan for which you might qualify, however, is the student loan. In the case of a student loan, the lender looks at what the loan is buying—essentially, a higher level of education and (presumably) increased earning potential. Whether you intend to attend a trade school or a university, the credentials you earn will result in an increase of income, enabling you to pay off the loan once you finish school. Most student loans have the advantage of not requiring any payments until you have completed your schooling.
Unsecured Credit Cards
You may not have thought of it in the light of a loan, but that’s essentially what credit cards actually are. They provide access to a line of credit that can be used at any time, in any amount up to the established credit limit.
When you purchase a five-dollar sandwich with your credit card, you are borrowing those five dollars from the credit card company; they have just bought your lunch for you, and you don’t owe them anything back until the due-date on your monthly statement. At that point you can pay off the full balance, in which case you have borrowed their five dollars without even paying interest on the loan. Or you can pay a portion of the balance, and begin owing interest on the remainder.
As with an unsecured loan, you might have a more difficult time qualifying for an unsecured credit card if your credit is poor. You might consider applying for credit cards issued by retail stores, which sometimes have a greater “tolerance” for bad credit. A department store wants to lure you into their store to shop there, which you are more likely to do if you get rewards from their proprietary card—and that means they’re more likely to give you a card than some of the big companies that specialize exclusively in credit cards.
Secured Credit Cards
Like a secured loan, a secured credit card uses collateral to offset your bad credit. When a bank or credit card company issues you a secured credit card, you will make a deposit to an associated account to which you don’t have access, except through the use of your card. If you deposit $500, then that is your spending limit. You can make purchases in stores or online, and you can get cash from ATMs with that card, up to the monthly amount that equals your deposit.
The obvious down side to a secured loan is the fact that you have to come up with that deposit up front. If you’re looking for a loan because you’re in need of cash right now, then you probably don’t have the resources to open this type of credit account. But remember that you’re still going to have access to the money deposited, through use of the card. You can put $500 down as a deposit for that card, then turn right around and pay $500 on a bill or car repair or needed purchase.
The huge benefit of using your money this way is that you can begin to rebuild your credit. Make your minimum payments on time, and you are creating a track record of “timely payments” that will reverse the downward spiral of your credit rating.
Home Equity Line of Credit (HELOC)
The HELOC is a form of secured loan in which you borrow money and use your home (or at least the equity you have in your home) as collateral. If you take the value of your home (let’s say $200,000) and subtract the amount you still owe on the home (we’ll say $180,000), the difference of $20,000 is the equity you have in that home. Essentially, it’s how much of the home you have already paid for. Even though you already have a mortgage on the house, you may be able to apply for a line of credit on that equity.
Some people choose to refinance their existing mortgages for a larger amount, in order to use the extra funds for remodeling or paying unexpected car-repair bills or some other purpose. If you’re canny about it, you might even end up with a lower interest rate than what you’re locked in to with your original mortgage.
An installment loan is a loan that comes with a payment plan—a certain number of payments, each for a certain amount, spaced out over a certain amount of time. The interest rate for an installment loan is generally locked in when the loan begins, and the interest that will be paid over the life of the loan is included in the payment amounts.
If you are negotiating an installment loan in Canada, consider looking for one that will allow you to make extra payments at times when you have the resources to do so. An extra payment (or an extra amount added to your monthly payment) will go entirely toward the principle, which is the remaining amount of the original loan, without the interest included. By paying down the principle, your loan will diminish more quickly, and you will not only pay it off early, but also end up paying less interest overall.
This type of loan is often available through banks and financial institutions, or you can search for online installment loans for bad credit in Canada.
A burgeoning business in Canada is that of payday loans. These are unsecured loans in the sense that you do not need to provide a car title or other form of collateral, but they do require proof of a steady source of income. The lender is forgoing the requirement of collateral to assure your payment because you are able to show that you will have the resources to repay the loan when you receive the next paycheck.
Because there is no collateral attached to the loan, payday lenders are assiduous in assuring themselves of your earnings, as well as your other financial liabilities. Your application will include proof of your income for the last few months, as well as disclosure of your regular bills and any other payments to which you are committed. The amount of your loan will be determined by that combination of figures; specifically, the lender is unlikely to loan you more than you would be able to spare from your next paycheck after you have paid your fixed expenses and bills.
Generally speaking, a payday loan will be due in full on the date of your next paycheck, and the interest rates tend to be very high. If you’re in a jam and need cash between paychecks, this can be a lifesaver, but some people end up in a worse jam if they find themselves accruing high amounts of interest if they are unable to pay off the loan in time.
Title loans are a form of bad credit car loans in which the lender takes the title of your vehicle as collateral on the loan. You can often borrow more than you could get from a payday loan, because they have the collateral of your car, but you do have to make sure not to fall too far behind on your payments if you don’t want your car repossessed. The interest rates on these loans are often very high, but they can be an option if you don’t have a regular paycheck, or if you need money quickly and in a higher amount than the payday loan will offer.
Other Options to Consider
Depending on your situation, you might find some additional alternatives for getting the loan you need. If you’re having no luck with financial institutions (or if you’re hoping to avoid the high interest charged by some of them) you might consider asking a friend or family member if they will loan you the money they need. With a promise of some interest, not to mention the chance to help out a friend, they might be willing to oblige.
Another option to consider for personal loans in Canada would be a co-signer, if someone close to you (and with a better credit score) is willing to vouch for you on the loan.
How to get a Bad Credit Loan
You can apply for bad credit loans in person at an institution offering payday loans or title loans. You can also look into online loans in Canada, and apply conveniently from home. Most online options will transfer funds directly to your bank account or prepaid card as soon as your loan application is approved.
In most cases you can see your money the same day, whether applying online or in person. Just because you have a bad credit rating, there’s no reason to suppose that you can’t get that loan you need.