Get a Bad Credit Loan in Canada

A bad credit score is any score between 300 and 575. Your credit score is a number between 300 and 900, and it represents your creditworthiness. 

Your credit score is a number that is calculated by credit reporting agencies and is based on many factors, including how faithfully you pay your debts, how many different types of credit products you have, their balances, and the total length of your credit history. 

There are five main factors that impact your credit score. Each factor contributes a certain amount towards your overall score. The five factors are:

• Payment history (35%)

• Credit utilization (30%)

• Credit history (15%)

• Credit mix (10%)

• Credit inquiries/credit checks (10%)

Misusing credit can hurt your credit score, so if you’ve missed multiple payments on your debts or defaulted on a loan, you might have a bad credit score. 

Bad credit can happen to anyone, even those with the best of intentions who have an excellent credit history. If you miss multiple payments, default on your loans, continuously carry a high balance, or close old credit accounts, your credit score will drop, and combining those mistakes is a surefire way to end up with bad credit.

If you have bad credit, you can apply and qualify for a bad credit loan. Bad credit doesn’t mean you should give up on securing a personal loan for the foreseeable future. Many online or alternative lenders focus less on credit checks and instead use different criteria to determine whether you qualify for a loan. Instead of relying only on your credit score, bad credit loan lenders will review other financial details, like your income and debt load, to determine whether you can pay back the debt. These alternative methods for determining your creditworthiness means that you can apply for a loan even if you’ve been through bankruptcy, consumer proposals, judgments, or have had delinquencies. 

Whether or not you’ll need a bad credit loan is mostly determined by your credit score. If your credit score is below 575, a bad credit loan may be your only option. Borrowers with a credit score of 650 and above have the best chances of qualifying for regular loans with lower interest rates.

Bad credit loans can either be secured or unsecured, so it’s important to understand the differences between secured and unsecured loans. 

Some bad credit loans are secured, meaning you’ll need to provide the lender collateral to secure the loan. Collateral could include a cash deposit or the value of your car. With collateral in place, secured loans may provide more money at a lower interest rate, because the lender has a stronger guarantee that you’ll make regular payments. However, secured loans may involve more paperwork and a longer processing time, as the lender might need to have your collateral asset assessed to confirm its value.  

Other bad credit loans are unsecured, meaning you’ll borrow money on the good faith that you’ll pay it back on time. You do not need to offer collateral to receive an unsecured loan. Without collateral in place, the lender is taking on a higher amount of risk lending you money. Because of this, unsecured loans often have higher interest rates.

A bad credit loan can actually help you improve your credit score if you manage your loan responsibly and make on-time payments. One of the factors in determining a credit score is your ability to make payments faithfully. If you pay back your bad credit loan without ever missing a payment, your credit score will increase. On the other hand, late payments can have long-term negative impacts to your credit score.

Another factor contributing to your credit score is having a mix of credit products on your credit history, such as credit cards and personal loans. A bad credit loan will add diversity to your credit history, which can help boost your credit score.

Your credit score is one of the most significant factors that traditional lenders use to determine whether to lend you money. With a bad credit loan, lenders use other factors to decide whether or not you can afford a loan, like:

• Your income and your length of employment

• Your age

• Whether you are a permanent resident

• Your debt load

• Your minimum monthly expenses, like rent

• Any dependents and their ages

A bad credit lender is mostly interested in whether you can afford to pay back your loan given your income, your debt load, and your fixed expenses. They’ll use this information to make that determination. You may need to provide proof of income and your employment length, proof of citizenship, copies of account statements, and budget information like rent payments. It’s a good idea to have this information on hand when applying for bad credit loans.

You likely won’t be able to qualify for a bad credit loan through a traditional lender like a bank or credit union. Instead, you’ll have better chances qualifying through a lender that specializes in working with low credit borrowers. You can find these lenders online by using a service like Borrowell. Sign up to find lenders that match your credit profile.

Borrowell gives you your credit score in Canada for free and will automatically match you with lenders that fit your credit profile. You can quickly compare lenders, terms, and rates, and you’ll see your chances of being approved before applying for a loan. Once you’ve found the right loan, you can start your online application through the Borrowell platform. Borrowell only works with trusted Canadian partners, so you don’t need to worry about shady or high-pressure business tactics. Using Borrowell can help you save time, avoid rejection, and find the best bad credit loan possible. 

If you choose to apply for a bad credit loan through a physical retail lender, you’ll need to research your options online first, read reviews, and then select your lender. You’ll need to make an appointment, go there in person, bring your documentation, and apply for a loan through a loan officer. You’ll wait several days for your application to be formally approved, although they may pre-approve you on the spot. This process can be time-consuming and exhausting. Applying for a loan online is much more straightforward, especially when using Borrowell.

The process of applying for a loan online is similar to a traditional lender, except that you won’t be speaking with a loan officer right away. Instead, you will complete the application from the comfort of your own home. You’ll usually be pre-approved instantly and then forwarded the loan specifics within 24 hours. At this point, you can take your time to read through the loan documentation thoroughly to ensure there are no surprise fees or restrictions. You can crunch the numbers and make sure they’ll work with your budget.

Most bad credit lenders promise to approve you for a bad credit loan within 24-48 hours. Bad credit loans with online applications are quick and simple. With online applications, the qualification and approval process is much quicker than in-person or over-the-phone applications.

You should check your credit score and know your chances of being approved before applying for a loan. 

When you apply for loans and lenders check your credit score, it is recorded on your credit report as a “hard inquiry.” Hard credit inquiries temporarily lower your credit score, and applying for too many loans all at once can actually damage your credit score.

Borrowell helps you avoid hits to your credit score. Checking your score for free with Borrowell is a “soft inquiry” and does not impact your credit score. With Borrowell, you can see your chances of approval from over 50 Canadian lenders before even applying for a loan. You can also gain personalized tips on how to improve your credit score, which can help you qualify for lower-interest loans in the future.

Most personal loans for good credit borrowers have interest rates ranging from 5% to 20%. Bad credit loans are inherently much riskier for lenders and have much higher interest rates, usually starting at 20%, but some can rise higher than credit cards. These higher interest rates mean you’ll pay a considerable amount of interest on your loan, so it’s important not to borrow more than you need and never borrow more than you can afford to pay back.

Bad credit loans have terms that can vary from lender to lender. Short term bad credit loans can have terms as short as 6 months. Long term bad credit loans can have terms as long as 5 years. Shorter terms means you’ll pay higher monthly payments, but you’ll pay less interest overall. Longer terms are more affordable monthly, but you’ll pay more interest on your loan in the long run. Work with your lender to determine how much you can afford to pay them back each month; this will help you find the best terms for your bad credit loan.

Bad credit loans range in amounts from $500 to $35,000. Remember, bad credit loans may have higher interest rates than regular loans. If possible, start with a small loan and use it to build up your credit score. Making on-time payments towards your loans will improve your payment history, which will help you improve your credit score. Once you’ve built up your credit score, if you need additional cash, apply for a regular loan with a better interest rate. This strategy helps keep you out of an endless debt cycle and puts you on the path to financial prosperity.

Since income is an essential part of the calculation bad credit lenders do when approving your loan application, it is unlikely that you will be approved if you are unemployed. That said, some lenders do allow third-parties to co-sign a loan, which means that a third-party is responsible for the loan if you default on payments. Having a co-signer may offset the additional risk of being unemployed, and you may still be approved.