Loans are a great way to borrow larger sums with lower interest rates. A bad credit rating could stop you from getting approved at traditional banks. Thankfully, there are other bad credit loans that accept applicants with all types of credit, even bad credit.
How to get approved for a loan with bad credit:
The idea of getting approved for an attractive loan with a fair interest rate when you have bad credit score could seem unrealistic for most. You may be thinking: Are there really such things as bad credit loans?
With the abundance of high-interest loans out there, the application process could get overwhelming. The good news is that getting approved for a decent loan could become a possibility with just a few simple steps in the right direction.
1. Request your credit report to understand why your credit is bad
Before even applying for a loan, it’s important to understand what information is hiding on your credit report (read this article).
There are two main credit agencies in Canada: Equifax and TransUnion. For the most part, the information they collect is accurate but it is not to say they don’t make mistakes. Before applying for a loan, make sure there are no mistakes on your credit report.
Learn More: Why are credit scores different between agencies?
There are two ways to receive your credit report, either by mail or online. Requesting it by mail is free but there is a longer delay in receiving it. By requesting it online, there’s an instant access to your credit report but it may have some fees attached. However, these fees could be avoided, Equifax offers a free 7-day trial, and TransUnion offers the first 7 days for $ 1. Also, you can use a credit management app.
Once you have your credit report in hand, make sure the information is accurate as this information will determine whether you’ll get approved for your loan and at which interest rate. You can also try a no credit check loan.
Things to look out for on your credit report:
Errors can be corrected by simply contacting the specific credit agency either by phone or mail and providing proof relating to the error. For more information, visit the Canadian Revenue Agency’s credit report information page
2. Understand the different kinds of loans available for people with bad credit
Before applying for a loan, it’s important to understand that there are different types of loans available.
Unsecured loans for bad credit will usually have higher interest rates than most loans but could be a good idea if you’re trying to avoid even higher credit card interest rates.
Secured loans require the borrower to guarantee some type of collateral such as your house (home equity line of credit) but offer a lower interest rate than unsecured loans.
3. Shop around for loans available for bad credit applicants (Guaranteed loans for bad credit)
These days, it is not only the large banks that are offering loans. While banks are stricter on who gets approved for their loans, other financial companies are willing to take on more risk and hence are more lenient when it comes to credit scores.
Although the interest rates may be higher than other loans at traditional banks, these no credit check loans and guaranteed loans offer the opportunity to rebuild your credit score while also providing larger sums at lower interest rates than credit cards.
Here is a list of a few financial companies that offer guaranteed loans for bad credit
4. Know the types of bad credit loans that should be avoided
Even though there are many good loans offered by the non-traditional financing companies, it’s still important to be wary. When applying for bad credit loans, it’s important to do your homework and understand exactly what the terms and policies are.
Here is a list of things to look out for:
5. Find a co-signer
If getting approved for a loan is not a possibility, there is always the option of finding a co-signer that could guarantee the loan. Depending on the co-signer, this could offer a lower credit rate while still rebuilding your credit.
Finally, it’s always recommended to first apply for loans at banks where you already have an established history, either by holding a checking account or a mortgage. That alone, could just be the reason your loan application gets approved!