How to get a loan with bad credit

Posted on 14 March 2022

Written by Ashvin Sharma

With rising interest rates and growing costs of living across Canada, especially in cities like Toronto and Vancouver, it is little surprise more and more Canadians are running into bad credit. While there is always a way to rebuild your credit score, you may need a loan more urgently. Perhaps you need a short-term fix or cash for an emergency. It is important to be careful here and not run into the trap of payday loan debt, or get stuck in a vicious cycle of credit card debt that is difficult to break. The best thing to do is focus on getting better credit and rebuilding your finances so that you can maintain some savings for when you need them. In the interim, here is our guide on how to get a loan with bad credit.

What is bad credit?

Bad credit is the term associated with having at least one of your accounts at the bottom end of the credit rating scale. Accruing bad credit is the result of a series of habits related to your spending behaviour. Typically, credit scores are based on a number of factors with varying levels of contribution. The most important factor is payment history – whether you make your payments on time, or if you miss some. Other factors include how much you owe in credit each month, the length of your credit history, the amount of new credit you try to take out, and the blend of forms of credit you may have. If, therefore, you have a history of missing debt repayments, rack up multiple debts, and perhaps live well beyond your means, it is likely you will have bad credit. Bad credit is reflected by Canada’s primary credit bureaus (TransUnion and Equifax) as a three digit number from 300 to 900. Generally speaking, a bad credit score is one between 300 and 559. Bad credit is important when it comes to applying for credit or loans because lenders will look at your credit score to assess your risk. At Spergel, we are here to help you with bad credit. No matter what your score, it is possible to rebuild your credit score by adopting some good habits. You can even see a change within six months. It is never too late to turn around your credit score to help you live the life you want to lead.

What is a bad credit loan?

A bad credit loan is a short-term financial fix for individuals who need to borrow money but have a bad credit score. The downside of a bad credit loan is that it typically has a very high interest rate compared with conventional loans. The terms of bad credit loans are also very short, and you will need to commit to them once you take one out. This is because of the increased risk lenders associate with bad credit. A bad credit loan is something that should be considered very carefully. It is not an ideal solution to your financial situation. When used correctly, however, bad credit loans could help to turn your finances around. They can begin to rebuild your credit score and help you to be considered for other loans with lower interest rates. Remember that bad credit loans are not your only option. There are many other forms of debt relief that may help with your financial situation. A debt consolidation loan can simplify your debts and lower your overall interest rate. Debt relief solutions including a consumer proposal or filing bankruptcy can reduce or completely clear your unsecured debt for a fresh financial future. At Spergel, our Licensed Insolvency Trustees will review your financial situation and walk you through the best debt relief option for you.

How to get a loan with bad credit

If you decide to go for a loan, the next step is figuring out how to get a loan with bad credit. First of all, you should request a copy of your credit report from both of Canada’s primary credit bureaus. This will help you to understand your credit score, and to establish if you truly have bad credit. It will also help you to determine how much you need to improve your credit score by. Next up, you will need to apply to a bank, credit union, or lender. The application process will require you to share details on your income and outgoings to determine the interest rate you will need to pay on your bad credit loan. If successful, you will then review your loan offers and compare the rates and terms and conditions of each. You can then decide whether or not to go ahead and receive the funding you requested. You should then work to make your debt repayments on time. If you can pay in full and on time each month, you will slowly begin to see your credit score improve in around six months, indicating that you are a less risky borrower. Although the process of getting a loan with bad credit can be difficult, some research and patience will help you. Fortunately, there are plenty of lenders who will want to help you.

Comparing bad credit loans

When it comes to how to get a loan with bad credit, there are a few criteria you should consider when making comparisons between your options. These include the following:

  • The interest rate. This is essentially how much the loan will cost you, so it may immediately enable you to narrow down your choices.
  • Repayment terms. Many bad credit loans will offer unfavourable repayment terms including a short period of time to make your full repayment so check how suitable this will be for you.
  • Qualification criteria. Check the eligibility criteria to see if you would actually qualify for the bad credit loan, including required credit score and minimum income.
  • The lender. Consider if you are comfortable with them, depending on factors like the communication and speed they offer.

Types of bad credit loans

Although banks are the most obvious place to get a bad credit loan, there are a number of other sources available. Here are the most common alternative lenders that may offer more favourable interest rates and repayment terms:

  • Credit unions – they have a maximum interest rate of 18%, which is substantially less than regular banks. The interest rate is applied to anyone, no matter your credit score.
  • Family or friends – depending on your situation and relationships, you may be able to borrow a low interest rate loan from a loved one with favourable repayment terms.
  • A co-signer – you may be able to find a co-signer with a good credit score. This will mean the lender bases the interest and repayment terms on the person with good credit, although they will be responsible for your repayments too.
  • Home equity loan (HELOC) – if you have equity in your property, you may be able to apply for a home equity loan. They usually have low interest rates because they are secured by your home.
  • Online personal loans – these are provided by banks that operate online. They work fast and can provide the funds in a number of hours or days, often without an application fee.
  • Secured bad credit loans – a secured loan is one that is borrowed against an asset, like a car or home. The asset will be held against the loan in case you default on making your payments.

Advantages of bad credit loans

Although often a requirement for an urgent situation or circumstance, bad credit loans do have a number of advantages. Firstly, bad credit loans are typically fast to come through, and many are available online. They usually have lower interest rates than with credit card debt, and there are many lenders who are willing to offer bad credit loans. There is some variation in repayment terms too, meaning you should be able to find a loan that works for you. The great thing about bad credit loans is that you can improve your credit score if you can make your payments in full and on time.

Disadvantages of bad credit loans

As with any advantages, there will always be disadvantages of bad credit loans. Firstly, they have high interest rates due to the risk associated with your bad credit score. You may also need to secure an asset along with your loan, like your house or car. There can be fees if you make late repayments, so you should always check the terms and conditions before agreeing to a bad credit loan. Ultimately, if used incorrectly, bad credit loans can make your debt and wider financial circumstances worse, so make sure you handle them responsibly and can make your repayments on time before committing.

If you want to know more about how to get a loan with bad credit, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years. They can help you to determine if a bad credit loan is the best option for you, or if another option may be better. Reach out today – you owe it to yourself.


Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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