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Get a personal loan, even with bad credit.

Credit scores in Canada range from 300 to 900, with 574 or less being considered a bad score. Whatever your score may be, it’s used by lenders to determine the likelihood of you repaying a loan.

A bad credit score can make it difficult for a person to obtain a loan, buy a car, or get a mortgage. Landlords and employers may also request your score to get a sense of your ability to meet commitments.

A personal loan can sometimes help you to repair your credit score. Personal loans also have lower interest rates than payday loans.

If you’ve got bad credit and need a loan, don't fret: LowestRates.ca will work to match you with a lender that can help you.

Read on to learn more about how loans work and what you can do to maximize your chances of being approved for one when you have bad credit. When you’re done studying up, feel free to apply for a no-obligation quote.

Your questions about bad credit loans, answered.

What is a bad credit loan?

'Bad credit loans' aren't really a thing — it's simply a personal loan with more rigorous terms and conditions, as well as higher interest rates. You may not be able to borrow the maximum amount offered by the lender and you may have better luck getting this type of loan from an alternative lender rather than a bank.

Generally, individuals with bad credit are given higher interest rates on personal loans compared to individuals with good or excellent credit. This is why it’s important to shop around to ensure you get the best rates possible.

What are the different types of bad credit loans?

There are two types of personal loans you can apply for with bad credit — a secured loan and an unsecured loan.

Secured loans use your collateral, like your house or car, to secure the loan. They can take longer to obtain since your assets need to be appraised and verified before the loan can be granted, however, they can provide you with a larger sum of money and lower interest rates.

Unsecured loans do not use any collateral to secure the loan but they can be more difficult to obtain with a low credit score. Generally, they have faster approval times and take less paperwork than a secured loan. It’s important to note that they do tend to have higher interest rates than secured loans. Again, it’s not easy to get one with bad credit.

Where do you get a bad credit loan?

You can obtain loans from banks or from alternative lenders in Canada. Someone with bad credit may have a harder time borrowing money from a bank because they tend to favour those with high scores and a good financial track record.

Alternative lenders, however, will often approve a loan application from someone with poor credit. Additionally, some alternative lenders offer guaranteed approval regardless of your credit history. This means even if you have declared bankruptcy or submitted a consumer proposal in the past, you will still be approved.

Many alternative lenders consider other factors when determining whether or not to approve a loan, and because of this, they may not even require a credit check at all. These lenders tend to look at factors like your income, stability and your individual circumstances.

What can you do to boost your chances of approval for a bad credit loan?

People with good or excellent credit scores tend to get faster approval for loans. Unfortunately, it takes a while to raise your credit rating from poor to good. However, there are things you can do in the meanwhile to improve your odds of having your loan application approved:

Get a co-signer. This should be someone who has a good credit rating and can provide proof of income.
Apply for a secured loan rather than an unsecured loan. Secured loans are backed up by collateral. Your credit score doesn’t offer a complete picture of your finances. For instance, you may have cash in the bank and at the same time have a low credit score.
Pay off other loans before applying for a new one, if possible. If you’re one or two payments away from paying off an older loan, it might be worth expediting the process, if possible, or delaying your application until it’s fully paid-up.
Lower your debt-to-income ratio. During the application process, a lender will ask you questions about your income and whether you have debt. This information will be used to calculate your debt-to-income ratio, an indicator lenders use to judge whether you’ll be able to pay them back. The Financial Consumer Agency of Canada says consumer debt (money owed on things besides a mortgage) should be no more than 15% to 20% of your gross monthly income. Total debt (which combines consumer and mortgage debt) shouldn’t be more than 35% to 40% of your gross monthly income.

What are some of the reasons for taking out a bad credit loan?

Life is full of unexpected expenses and a personal loan can help you cover them.

If you have a low credit score, you can take out a personal loan to improve your credit. As long as you ensure that the lender is reporting your payments to a credit bureau, a loan can increase your score by demonstrating that you are making your payments.

What to watch out for when you apply for a personal loan with bad credit.

If you’re thinking of applying for a personal loan while having bad credit, it’s wise to do research ahead of time and compare your options. If you have poor credit, there are a few things to consider when choosing your loan:

Interest rates: You will inevitably pay a higher interest rate on your loan than someone with a high credit score. However, you should still look around to find the best rate possible. Different lenders will offer different rates.

Credit reporting: It’s important to make sure that the lender you choose reports your payments to the credit bureaus in Canada. The two main credit bureaus are Equifax and Transunion. This will help raise your credit score, making it easier for you to obtain lower interest rates on loans you may apply for in the future.

Fees and penalties: Personal loans carry various fees and penalties. Make sure you read the fine print to avoid any loans that come with hidden fees. Make yourself aware of any penalties for things like late or missed payments. There may also be a penalty or fee for paying off the loan early.

Be careful of predatory lenders who may trap you into an endless debt cycle. Some lenders may not have your best interests at heart and use high-interest rates and additional fees in order to keep you perpetually in debt. When used responsibly, a bad personal loan can be used to help you get out of a tight spot and help raise your credit score.