It’s challenging to have bad credit and come across a time when you need a personal loan. Most options for an unsecured loan with favourable terms require a credit score over 650, making the waters appear murky at first.
The good news for borrowers is some lenders make it their business to focus on people with bad credit. You can find an unsecured loan even if your credit score is low.
Before going down this path, look into finding a co-signer for a loan or seeing if you qualify for a secured personal loan. When this isn’t possible, an unsecured bad credit loan is a very real choice.
What is an Unsecured Personal Loan?
A personal loan is any time you borrow a fixed amount with an agreed upon payment schedule. When it is an unsecured loan, there is no collateral at stake and the terms are set based on your credit score.
Having a poor credit history will make qualifying for an unsecured loan harder, but it is possible. There are plenty of lenders that offer bad credit loans in Canada, and with some vigilance it’s easy to find reputable services.
Look over the repayment terms and double check how long it will take to pay everything in full. Here are some things to watch out for:
- Borrowing Cost
- Interest Rates
- Loan Length
- Late Payment Policies
Understand your budget and the impact of taking on this bad credit loan. While there is certainly a lot of risk, a quick influx of cash can often make a world of difference.
Is a Bad Credit Loan Worth It?
The main draw for a bad credit loan is that you’ll get the amount you need now. The fees and higher interest rates are there to streamline the process and add insurance to the lender.
Most lenders will have payment options that let you repay your instant loan over a significant period of time. This makes each individual payment smaller but comes at the cost of paying more overall.
In general, these unsecured personal loans will be an item in your budget for awhile. A positive spin is that making each payment on time should end up boosting your credit score once the loan is repaid.
To determine if a bad credit loan is worth it will largely depend on if you can afford to pay for it a year from now. Work out a budget that takes into account some wiggle room for miscellaneous expenses.
As long as you can repay your bad credit loan there’s it’s something worth considering. Especially if the debt allows you to secure a source of income or deal with an emergency.
Watch out for predatory lending
When you are looking into options for an unsecured personal loan, there are a few signs to watch for that indicate predatory practices. Malicious lenders are trying to create a cycle where you keep paying the minimum amount, but the total balance owed stays the same.
One of the main giveaways a bad credit loan is actually a trap is a lack of specified terms. Lenders should clearly indicate the APR (annual percentage rate) along a concise loan length.
Once you determine the APR and loan length, you need to decide if they make sense. Avoid APRs of nearly 400% on payday loans, which multiplies your debt by four each year.
Some lenders will make excessively long loan lengths to make more off interest rates. While you should watch for lengthy terms, a short and frequent repayment schedule can quickly become a burden.
Short payment schedules on bad credit loans can be designed to make you miss a payment. This leads to late fees and other penalties that will stretch add months to your contract.
Predatory lending is designed to make sure you pay forever. By double checking everything you will find a company you can trust.
Preparing your loan
Since repairing your credit is a lengthy process and you need money now, let’s look at how to prepare your bad credit loan.
- Check your credit report and make sure there are no errors.
- Know your credit score.
- Determine the exact amount of money you’ll borrow.
- Evaluate lenders and determine where you may qualify for a loan.
- Get quotes from each lender clearly stating the APR and loan amount.
- Choose your lender.
Depending on who provides your personal bad credit loan, you may need to supply additional documents. Often you’ll have to prove a source of income or provide a proof of address.
While a secured loan or a loan backed by a co-signer will offer you more favourable terms, that may not be realistic for you. What’s important is that you are patient and find a lender that has fair and honest terms.