Debt Consolidation
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  1. Debt Consolidation
  2. Bad Credit Loans, Unsecured Personal Loans & Debt Consolidation

How Bad Credit Loans Work and Common FAQs

How bad credit loans work is different from how traditional loans work. Lenders put more conditions on these loans. You’ll notice some things as you apply, but might miss others. Here are answers to bad credit loans FAQs (frequently asked questions):

How do you apply for a bad credit loan?

Find a lender that offers this type of loan and apply directly. Different lenders have different processes and many lenders offer this service but don’t advertise it. Make sure the one you choose fits your needs.

Can you get a bad credit loan with no credit check?

There are some lenders that won’t check your credit. However, most lenders will ask you to consent to a credit check because they do need to see how bad your credit really is. They will also look at more than just your credit report. This may include your work history, income, utility bills, assets, address, etc.

Are bad credit loans expensive?

Yes, especially if it’s also an unsecured personal loan. Loan amounts are lower and interest rates can be very high.

What extra fees do bad credit loans have?

It depends on the lender. You might pay fees to apply, be charged extra fees for late payments, and have other miscellaneous fees along the way. They are required to disclose their fees up front, so ask them for that information.

Can a bad credit loan affect my job?

To get the loan, you might have to agree to wage assignment. This means the lender can take money straight from your paycheque if you fall behind on payment. Your employer will then know that you got this loan and can’t make your payments.

Advantages and Disadvantages of Bad Credit Loans

Pros and Drawbacks Explained

The biggest advantage of bad credit loans is that you can get them even if your credit score is very low. There’s sometimes even no credit check needed at all. You can get approved more easily if that held you back before. A fast approval time can be expected. You can use the loan for whatever you need. Repaying it on time can help improve your credit if the lender reports your payments to the credit bureaus. Lenders that don’t require a credit check to get the loan often don’t report your payments.

Unfortunately, there are also many drawbacks of bad credit loans. No credit checks might sound great, but they’ll just check other parts of your life instead. For example, they might want to call your employer or you’ll have to provide many months of utility bills in your name. That may affect your application. High interest rates and fees can keep you in debt longer, which is a serious disadvantage of bad credit loans. If you start getting new loans to pay off your old ones, you could get stuck in an endless debt cycle.

Bad Credit Loan

Different Types of Loans
Can Help to Solve Financial Needs or Put You Into (More) Debt

Different types of loans serve different financial needs. Mortgages help people build home equity. Car loans help people buy vehicles. Self-employed Canadians may use commercial loans to kickstart their businesses. These different loans all solve different problems. However, they can also dig people into more debt than expected – especially when taken as bad credit loans. For example, it’s easy to end up with a car loan worth a lot more than the actual car. What if that car then gets written off in an accident? The insurance payout won’t cover the loan. People can then be left with a car loan and no car. If they need to drive, they’re forced to try and get another high interest vehicle loan.

A payday loan is the easiest unsecured personal loan to get with bad credit, but it can also be the hardest to get rid of. It should just help cover expenses until your next paycheque. However, with extremely high interest rates, any repayment delay rapidly builds into a big problem. This debt can quickly become unmanageable and put you far behind financially.

Where to Go to Get a Loan with Bad or Poor Credit

Having bad credit doesn’t mean it’s impossible to get a traditional loan. It’s still worth talking to your bank or credit union to see what they can do. If that doesn’t work, other options are peer to peer lending, getting a cash advance with your credit card, and bad credit loans. A non-profit credit counsellor can help you look into all of these different loan options and solutions for free.

Some bad credit issues can be easily fixed. For example, if it was caused by a small bill that went to collections recently, then pay it and bring proof to your bank or credit union. That can convince them to give you the unsecured personal loan you need. You then won’t have to find a bad credit loan.

How to Spot a Loan Shark
Avoid Bad Credit Loan Scams and Find the Best Lenders

Loan sharks try to pull people into bad credit loan scams. This can make an already serious issue far worse. At first glance, it might be hard to tell the difference between sharks and legitimate lenders. Keep in mind that loan sharks don’t always look like they do in the movies. It’s a red flag if the lender:

  • Doesn’t have a website.
  • Doesn’t have reviews.
  • Can’t be searched online.
  • Offers interest rates way higher or way lower than other lenders you find.
  • Tries to pressure you into taking out the loan.
  • Approves a loan without getting any info from you.
  • Knows info about you that you didn’t tell them.
  • Approaches you at your home, workplace, or school.
  • Makes you pay high upfront costs to get the loan.
  • Charges you a fee if you pay a loan off early.
  • Offers a deal that looks too good to be true.

Avoiding loan sharks is one thing. Finding a good unsecured personal loan is another. The best lenders should fit your needs, not the other way around. Carefully review their conditions, including interest rates, time to repay, and late payment penalties. Don’t be afraid to explore debt relief alternatives like debt consolidation if needed. This helps you get a bigger picture and find the best solution for your situation.

Loan Rates Vary by Lender; Choose Wisely
How to Create a Budget to Pay It Back

Bad credit loan interest rates vary by lender, and conditions change based on how a lender operates as well as your situation. Know exactly what these other terms and conditions are before committing to a loan. Federally regulated financial institutions must provide clear info through a loan disclosure agreement. The Financial Consumer Agency of Canada has a fixed interest example of this, which can apply for unsecured personal loans. Even unregulated lenders must give you this info; refusing to show it means they might be trying to scam you. For variable interest loans, also aim to get a low cap on how much the rate can rise.

Having a budget is crucial to paying back any type of loan and avoiding more debt. If you’ve never made one before, it’s simply a spending plan. Payments for your loan must be taken from other parts of your spending. This might mean you save less money or spend less on non-essential items and services. Raising your income can also be an option. What doesn’t work is keeping everything the same and expecting to have money left over for debt payments. If you don’t plan how to afford your payments, they won’t happen.

Qualifying for a Loan
Requirements Lenders Want Met

When it comes to qualifying for a loan, lenders need to believe you can handle a loan before they give it to you, and they have requirements you need to meet. Info like your address, employment, age, dependents, and existing debts like a mortgage can all be considered – especially for a bad credit loan. You may also have to provide your ID, social insurance number (SIN), and a bank account statement with auto deposit. You’ll have better chances of qualifying if you have a history of repaying your debts and making payments on time. Even if you move to another country like the UAE for a few months, this history will still apply in Canada when you return.

Already been declined for an unsecured personal loan? There’s still hope. Even people with a previous bankruptcy can eventually qualify. Your goal now is to improve your credit. One of the best ways to do this is simple; just make your credit card payments on time and keep its balance low. Keep this up for at least 6 months before reapplying for the loan. If you can’t get an unsecured credit card, then a secured credit card works too. You just provide a cash deposit and then use it like a normal card. If you need cash for the deposit, consider selling some personal items – a few hundred dollars is enough. An advantage of secured credit cards is that there’s almost no risk of the balance owing exceeding the limit.

You May Not Qualify for a Loan If
Your Credit Score and History Raises Flags to Lenders

A low credit score is the most common reason Canadians don’t qualify for the loans they want or need. The good news is that the red flags can be fixed. If your credit history is too short, build it with a secured credit card. If you have missed or late payments, catch those up. If your credit cards are close to maxing out, bring the balances down. You won’t be able to fix everything at once. But small steps will help to gradually improve your credit. Equifax labels credit score ranges as follows:

  • 760-900: Excellent
  • 725-759: Very Good
  • 660-724: Good
  • 560-659: Fair
  • 300-559: Poor

Bad credit loans are typically for those with a score under 600. However, don’t obsess over your credit score. One thing lenders really like to see is stability. You can show this by staying employed in the same industry and living at the same address. If you need to move often, try to get a stable mailing address. Most importantly, avoid applying for credit too often. Whenever you make an application, lenders make an inquiry on your credit. Getting several inquiries back-to-back can do a lot of damage.

Secured and Unsecured Loans Checklist

Whether you want a secured or unsecured personal loan, there are a few things you should do before applying. Below is a checklist of them. Following these will help you avoid problems later:

  • Review your credit report. If you find problems, try to fix them before applying.
  • See if there’s a way to get the money you need without taking out a loan. Options may include selling personal assets or borrowing from family.
  • Research different lenders without applying or giving any personal information (to avoid credit inquiries that can damage your score).
  • Make sure you understand all interest rates, conditions, and fees of the loan you want to apply for. This includes what happens if you can’t repay it.
  • Have a realistic plan to repay the loan.

The easiest bad credit loan to get is a secured loan. If it’s defaulted on, then the collateral provided will be lost. If you don’t have any acceptable collateral, then an unsecured payday loan can be easy to get, but hard to get rid of. It typically uses your pay cheque or bank account to approve your loan. This is best avoided because interest rates are often sky high and lenders can be very aggressive with collecting.

Guaranteed Approval for Loans for Poor or Very Bad Credit Canada

Stay away from anything that’s marketed as guaranteed approval loans for people with poor credit in Canada. When looking for a loan, you won’t find a bigger and redder red flag than the word “guaranteed.” The same goes for “instant approval.” These kinds of loans are only guaranteed to have high interest rates. The idea of automatically being approved for up to a $10,000 loan can be tempting, especially if you’re very worried about having extremely bad credit. But even if your money needs are urgent, don’t fall for this trap. It’s never worth it in the end.

How to Get Out of Debt with Bad Credit
Debt Consolidation Loan and Other Options

Debt consolidation can help you get out of debt with bad credit. It works by taking your current high-interest debts and combining them into one, lower-interest debt. Paying less interest helps you pay the principal down faster. A debt consolidation loan is one way to do this. A credit card balance transfer is another way, but can be more costly. Getting out of debt will greatly help your credit in the long term. However, both of these options can lower your credit score at first. They both also carry the risk of doubling your debt. To avoid this, only use them to pay down your current debt, and don’t make any new debts before they’re fully paid off. This can be harder than it sounds. Plan for success by making a realistic budget before consolidating your debt.

Getting a debt consolidation loan or credit card balance transfer is difficult with bad credit. Instead of borrowing more money to consolidate, you can consolidate just your debt payments with a debt management plan. This isn’t a loan or credit line, so you can be accepted regardless of your credit. In fact, your approval is not based on your credit check at all. By working with a non-profit organization like us, you’ll also have the benefit of guidance from a credit counsellor. The counsellor will help you make a budget and plan for success – you won’t have to go it alone. Learn more about how this alternative can help you with your debt problems. Call us at 1-888-527-8999.

Contact Us for Help with Bad Credit Loans
Unsecured Personal Loans and Debt Consolidation

Bad credit affects our lives in many ways. It makes it harder to get the credit we need, can affect employment opportunities, and may make saving money more difficult. Debt feels so discouraging when you’re trying to move forward financially. Bad credit is also a symptom of other issues. These can include not repaying unsecured personal loans, getting caught by a scam, or not following positive credit and money habits. The good news is that if you know the cause of your credit problems, the solution is also within sight. Our knowledgeable non-profit credit counsellors can help you figure out both. Reach us by phone at 1-888-527-8999, by email, or by anonymous online chat. Read some of our reviews and testimonials to know we’re the real deal. Our friendly counsellors can help you understand how a bad credit loan or debt consolidation would affect your situation. We’re happy to help you find debt and credit solutions that work. Appointments are free and confidential.

Last Updated on July 10, 2024

Not sure which option is right for you?

Get answers from an expert.

With so many debt consolidation options out there, it can feel overwhelming to try and find the right one by yourself. One of our professional credit counsellors would be happy to guide you through this process by carefully reviewing your whole financial situation with you and answering any questions you have. Speaking with our certified counsellors is always free, confidential and without obligation.

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