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Getting a Personal Loan with Bad Credit in Canada

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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.

Installment Loans

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.

Payday Loans

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

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.

Canadian Guide to Credit Cards for Bad Credit

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Some people will tell you (mistakenly) that the best way to fix your poor credit is to cut up every card you’ve ever owned, and to avoid them like the plague thereafter. Folks who offer this advice mean well, but they’re dead wrong. The best way to beat your bad credit is actually the intentional use of a “bad credit” credit card.

Even if it was card usage that got your score into trouble, a credit card for bad credit can be your redeemer. And even if this approach seems counter-intuitive, the best way to repair your credit is still to get a credit card.

You need the right kind of credit cards for bad credit, and you need to use them the right way—so keep reading to find out how!

Credit Cards for Bad Credit

Let’s face it: life without a credit card is nearly impossible these days. There are plenty of places that won’t even take cash, and a lot more places that won’t touch a check. If you’re without a card, what are you supposed to do?

Cards are required for online shopping, making reservations, paying some bills, and sometimes even collecting a paycheck. If you’ve been told to get rid of all your cards, you’re probably in a state of near panic at the prospect!

But here’s the thing. Your credit score is determined by your ongoing activity in the financial world, and inactivity can be just as detrimental as “negative” activity! Did you know that?

You may have figured you’d just hunker down, pay cash for everything, and “wait out” the negative hits to your credit score. However, if you are not actively engaging in positive, credit-building financial activities, your score will just keep sinking.

What you need, then, is a way to reverse the unhealthy momentum of your sinking score. You need credit card transactions that are foolproof. (No, you’re not being called a fool. But you need assurance that neither mistakes nor circumstances will unintentionally dent your credit any further. And that’s where the “bad credit” credit cards come in.)

You may imagine that it’s going to be difficult to qualify for a card, since applications are often denied in cases of poor credit history. That’s why some of the bad credit cards are so well suited to your situation; they are secured in various ways to make them easy to get, regardless of your credit score.

Types of Credit Cards for People with Bad Credit

Credit cards for bad credit in Canada come in several different types, with varying benefits and usage possibilities. Here’s a breakdown of the possibilities so you can see what best suits your situation.

Secured credit cards.

If you’re familiar with secured loans, you know that they backed by collateral—something of value that the lender can repossess if you don’t make your payments. That’s how a home mortgage works, for example, with the house being the collateral that secures the loan.

A secured credit card (sometimes also called a guaranteed credit card) operates on the same principle. When you open the account, you make a deposit up front that acts as collateral on your line of credit. If you deposit five hundred dollars, you have a limit of $500. The card company doesn’t take a risk in letting you use their card (up to that limit), so they don’t mind issuing you a card.

You might wonder why this is beneficial, since it’s really your own money you’re borrowing against when you use this card. Well, the benefit comes in the transactions you make, which show up as “credit card use” on your report. Suppose you pay your power bill and buy gas with your card; your credit history now incorporates those transactions, and your payment on the credit card bill. If you had kept that $500 and paid for power and gas with cash, those payments would have not helped your score at all.

Low interest credit cards.

It may be more difficult to get a low interest card, but if you do qualify, it’s a good one to have. If you find yourself carrying a balance on your card, you want to be paying as little interest as possible on that balance while you work on improving your credit score.

It should be noted here that carrying a balance on your card does not negatively impact your credit score. So long as you pay the minimum (and pay on time!) carrying a balance can actually boost your score. (That’s not too mysterious when you think that your credit score is essentially a measurement of your desirability as a money-borrower; a person who pays interest is a desirable borrower from their perspective.)

If you can qualify for a low interest credit card, look for cards with introductory offers. Some cards will not charge any interest for the first few months, or even a year, after you open the account. (After that point they’ll charge interest on the entire remaining balance, so you should be careful and keep the “deadline” in mind. But that grace period can actually enable you to use the time to pay off your debt.)

Some of these cards will also allow you to transfer your balance from other cards with higher interest, consolidating your debts under the lower interest rate.

Prepaid credit cards.

A prepaid card operates very much like a debit card for a checking account, but without the actual bank account. You purchase the card and “load” it with whatever amount of money you choose, and then you can use the card exactly like a debit card, drawing on the funds you have already loaded.

This approach has all the benefits of a secured card, but with more flexibility. You can determine how much you want to load, usually without required minimums or maximums. You can reload any time you have money, rather than being held to the monthly credit-limit amount of a secured card (like the $500 example used above).  You can even have an employer make direct deposits of your paycheck onto the card, just as if it were a checking account.

Store credit cards.

Sometimes a large retail store will approve card applications from folks with less-than-stellar credit, because they want to tempt you into their store with the rewards associated with the card. Once you have been approved, that card can be used in any venue, not just the issuing store. And because they’re less picky than stand-alone card companies, you have a better shot at getting one. It may have a low credit limit, but it gives you a tool for rebuilding your credit score.

Rebuilding Your Credit with a “Bad Credit” Credit Card

Now you’ve seen the different types of cards and their different options. The other important piece of the plan is how to use a “bad credit” credit card in Canada in order to improve your credit score.

The critical component of card use is understanding what types of transactions boost your score (and doing those things!) as well as what types of transactions will hurt your credit score (and avoiding those!).

On-Time Payment (Preferably in Full)

This is the number-one way to boost your credit rating! And it’s a very black-and-white issue; even if your payment is one day late, it goes down as a late payment. A payment that’s three days late will look just as bad as a payment that’s three weeks late (though admittedly, not as bad as one that’s three months late).

The way your credit gets measured, payments are broken down into categories. The “good” category is payments that are made on time or ahead of time. The “bad” categories break down your late payments by how many months they’re late—for example, if a late payment is more than 30 or 60 days past due when it gets paid.

Keep in mind, too, that these payment timelines get more or less etched in stone on your credit report. If you were five days late on your card payment when you paid it, it will go down as a late payment. So make it a habit to pay your monthly bill a little ahead of time every month.

Pretend it’s a Debit Card

This will be easy to do if you have a prepaid card, because those work exactly like debit cards. The idea here is that you only spend money you actually have, rather than assuming you’ll be able to pay the bill when it comes due, or (worse) using your credit without planning to pay the full balance.

Carrying a balance on your card (if you have a card that allows you to do so) will not, in and of itself, lower your credit score. The reason you want to avoid it, though, is that it’s a sign you don’t have a handle on your spending. First you’ll be carrying a balance, next thing you’ll be missing a payment. It’s just a step in the wrong direction now that you’re trying to manage your money better and raise your credit score.

Don’t Carry Too Many Credit Cards

Don’t go overboard and load up on too many cards. Even if you’ve found another easy-to-get credit card, you don’t want to have too much credit, because that can actually count against your score. Credit companies look at how many different “obligations” you have (in terms of loans and lines of credit) and weigh that when they consider whether you’re a good risk. If they think you’re already overextended, they’ll decide they have a lower chance of getting paid if you were to default or get behind on your payments.

Top Picks: Canadian Credit Cards for Bad Credit

When you’re shopping around for a “bad credit” card in Canada, the following four are the top picks for rebuilding your credit score:

  • Affirm Financial MasterCard: An unsecured credit card specifically designed for people with poor credit. Affirm updates your information at credit bureaus with every payment, so you can see your score improve more quickly than with other cards.
  • Peoples Trust Secured credit card: A secured card that allows a credit line equal to the entire collateral deposit you make (a minimum of $500 to start).
  • Home Trust Secured Visa: A secured credit card (minimum deposit of $500) with no annual fee.
  • No-Fee Scotiabank Value Visa Card: An unsecured credit card, relatively easy to get and no deposit needed.

In Conclusion… Bad Credit? Great Plan!

Hands down, the most solid game plan to rebuild your credit is the intentional, careful use of “bad credit” credit cards in Canada. Take your pick of the easy to get cards, and stick to your guns to use them in a way that will benefit your credit score.

If you track your spending so it doesn’t outstrip your income, use your cards as often as possible, and pay your bills on time (and preferably in full), your credit rating will climb in no time!

Debt Consolidation Loans in Canada – Your Way Out of Debt

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If you feel like you’re drowning in debt, you’re not alone. The problem is so pervasive throughout our society that there are now credit counseling services devoted exclusively to Debt Solutions!

For people overwhelmed by debt, one of the most demoralizing aspects is the unmanageability of the many different loans, credit accounts, and payments. It feels like there’s always another payment coming due, another payment missed or overdue, and others pending. You probably dread the arrival of the mail carrier because he always brings another bill, collection letter, or threatening notice. You probably don’t pick up calls from unknown phone numbers for the same reason.

If this describes you, take heart! There’s a solution just waiting for you. It’s time to consider debt consolidation.

How Does a Debt Consolidation Loan Work?

Debt consolidation in Canada is essentially the process of putting all your various debts and payments under one umbrella. When you’re finished, you’ll have just one extant loan, and one monthly payment. You’ll be paying less interest overall, and you won’t be swamped by all that demanding mail and all those threatening phone calls from bill collectors.

To get your debt consolidation loan under way, you will first need to gather up the paperwork on every debt you have. That includes bank loans, payday loans, title loans, credit card balances, mortgage, and every other form of debt you owe.

Once you have collected all that paperwork, you’ll want the assistance provided by credit counseling, with an experienced professional to guide you through the necessary steps. Your credit counselor will use the information you’ve gathered to determine exactly how much you owe in total, adding up your home and car loans, your credit cards, and all the other commitments on which you owe.

With that number in hand, you will know exactly how much you’ll need in order for a debt consolidation loan to cover your existing obligations. At this point the goal is to apply for a loan that will enable you to pay off all of your debtors. That’s right, you’ll pay off your car, your house, your credit cards, and every other loan that’s accruing interest and attracting the attention of bill collectors.

Now you have a single loan, and because its interest rate will be lower than the rates of many of your previous debts, your overall monthly payment will be lower than the total you were paying before.

Benefits of Debt Consolidation Loans

The benefits of debt consolidation are many, and readily evident:

Single payment.

You have been getting multiple statements, bills, invoices, and collection letters for the various obligations you owe. That’s an overwhelming amount of mail, and an impossible number of payment due-dates to keep track of. With consolidated credit in Canada, you’ll have just one loan, one statement, and one payment each month. Imagine the extra time you’ll have once the hassles of multiple debts have been resolved!

Lower payment.

Not only will the number of your payments decrease, but also the total amount of those payments will diminish. Credit cards, payday loans, and title loans all charge extremely high rates of interest, and once you’ve gotten behind on your payments, you’ve been paying a whole lot of extra money just toward the interest. With debt consolidation loans in Canada, your single loan will have a much more reasonable interest rate, so your total monthly payment will be considerably lower.

Pay down debt faster.

Less of your money will be going to interest with your debt consolidation loan, which means you can pay down the actual debt much faster! With lower amounts due each month, you will be able to afford to pay down the principle on your loan that much more quickly.

Improved credit rating.

When you have a dozen different payments due at different times, it’s almost impossible to keep track of them and keep up with them. Your credit rating has probably taken a big hit due to missed and late payments, but all that bad credit is about to change. When you only have one single payment to make each month, you can make it a priority to get that payment in on time. Watch your credit rating improve as you pay off your original debts and loans, and make your new payments on time every month.

Debt Consolidation Strategies for Canadians

Add the debts to your mortgage.

If you have an existing mortgage on your home, that can be a good opportunity for consolidating your other debts. You can refinance for a new mortgage in an amount that will cover your various debts as well as the amount still owed on the home. Or you can take out a second mortgage, or home equity loan, against the equity you have in the home.

Using a mortgage to consolidate your debts will usually get you a low interest rate and sufficient funds to pay off your debts. The lender has the collateral of your home to secure the money, so you are not considered a high-risk prospect.

Get a debt consolidation loan.

A debt consolidation loan encompasses all of your current debts, allowing you to pay them off and go forward with a single, low-interest loan. Your best bets for consolidation loans will probably be banks or credit unions. The lender will assess the worth of your assets and income and your credit rating, among other factors. If you have a pre-existing relationship with a bank, you may enjoy better terms with that bank than with one where you don’t have a history. A credit counselor can help you identify and apply for a debt consolidation loan that suits your circumstances.

Consolidate with credit cards.

Some people use their existing credit cards in such a way as to minimize the interest owed, and reduce the number of different debts. They do this by transferring all their balances to the card with the lowest interest rate. If you can get a card that has an especially low rate (or an introductory period in which no interest is charged), that type of card is ideal for this purpose. With this approach, you will lower your overall owed interest, as well as streamlining your outstanding debts.

File a consumer proposal.

A consumer proposal consists of a legal filing in which you propose a payment amount that’s less than you’re currently paying. This is an option if you don’t qualify for a consolidation loan and don’t want to declare bankruptcy. If the creditors holding more than half the debts agree to the filed proposal, you may be able to clear your debts with a lesser payment than what you currently owe.

Borrow from family or friends.

Do you know someone who has the resources to help you out with your debt consolidation? You can work out a private arrangement wherein you agree to pay back (probably with a certain amount of interest) the money you borrow now to pay off your high-interest debts. Your lender will benefit from getting the interest, making it essentially a low-risk investment where they’ll earn better interest than if that money were sitting in a savings account. And you will benefit by being able to pay off your high interest obligations and get right to the business of paying down your debt. It’s a good idea to sit down with your lender and forge a written agreement about your loan. That way you can avoid any misunderstandings or hurt feelings; after all, you don’t want to lose a friendship as the price of reducing your debts!

Talk to a credit counselor.

If you find the options overwhelming, or aren’t sure what choice would work best for you, seek the advice of a credit counselor. There’s more to it than simply replacing your existing loans with a new one; you’ll also want to make some changes to your finances so you don’t find yourself mired down in debt again. There’s no one more experienced and savvy than a credit counselor when it comes to debt consolidation loans in Canada.

Who Offers Debt Consolidation Loans in Canada?

Consolidated Credit Counseling Services of Canada offers everything you need to get a handle on your debts. You can apply online, request a call, or phone them at your convenience to get a start on consolidating your debts.

Whether you are trying to recover from (or avoid) bankruptcy, have gotten behind on utility bills or rent or other expenses, or are just struggling with your debts, CCCSC can work with you to find debt solutions and financial advice as you go forward.

Debt consolidation goes hand-in-hand with making financial changes to avoid debt troubles in the future, and your credit counselor will be right there with you as you tackle your financial habits and consolidate your debts. You will find that it’s not sufficient to merely lump your existing debts together with debt consolidation; you will also need to fundamentally change the way you handle your money and finances. A change in habits, combined with a debt consolidation approach to your existing outstanding balances, will do the trick for you!

It can truly be overwhelming to try to get a handle on your debts when they seem to be coming at you from all directions! It’s hard to figure out how to prioritize the various debts and payments, and it’s hard to come up with the money for each of those payments as they come due in their turn. More than anything, it’s just hard to get your head around the whole mess and figure out how to come out on top.

That’s why credit counseling and debt consolidation loans in Canada hold the key. With a consolidation loan you can look forward to eventual freedom from debt, and peace of mind in your near future!