How to Secure a Loan if You Have Bad Credit

Before we explore whether it’s possible to secure a loan if you have bad credit, let’s talk about the concept of bad credit.

What does having bad credit mean?

Generally speaking, a bad credit rating is below 600. This means that financial institutions may be reluctant to lend you money. As a result, your loan application could be refused.

What are the reasons behind bad credit?

If your credit report shows a low score, it means that your payment history is not great. For example, you were often late in paying bills and the monthly instalments on your loans or line of credit. You also most likely used your credit cards without paying the full balance.

What kind of loan can I secure if I have bad credit?

If your credit rating is between 300 and 600, you’ll find it harder to secure a loan from traditional financial institutions. Other lenders may agree to grant you a personal loan without a credit check, but these loans often have higher interest rates and lower credit limits. The lender will simply ask you if you’ve worked for the same employer for the past 3 months and whether your gross monthly income is at least $1,200. A few hours later, your loan will be deposited into your bank account by direct deposit.

There are four different types of loans:

• Secured loans: these loans are known as secured since they’re secured against one or more of your assets (your home or car, for example). Therefore, if you don’t repay the loan, the lender will seize your asset.
• Short-term loans: these loans must be repaid within a very short timeline, but they carry high interest rates.
• Guarantor loans: you’re granted a loan on the condition that another person (friend or loved one) agrees to act as a guarantor. In other words, if you don’t repay the loan, they’ll have to repay it.
• Pledge loans: you’re granted a personal loan and one of your assets is required to secure the loan. Based on the type of agreement, the pledge loan lender may either sell the asset or hold it until you’ve repaid the loan or after the repayment deadline has passed.

Beware of quick loans!

An increasing number of companies in Quebec specialize in quick loans for individuals with bad credit. They agree to lend you small amounts and don’t ask many questions. However, you should be careful! The interest rates associated with these loans are often astronomically high (up to 29%)! Furthermore, you have a short timeline to repay the loan (often less than a year). Needless to say, if you take out this type of loan, you could end up in a very difficult situation. To find out more about quick loans, read our article on the topic.

Be patient!

If you have a bad credit rating, it might be best to wait until you’ve improved your credit score before applying for a quick loan from any lender. Indeed, you can improve your credit score by adopting sound financial habits. You can weigh the pros and cons!

However, if you have debt issues and are having trouble finding your way out, call on one of our licensed insolvency trustees. They can help you find solutions. The first consultation is free and confidential.