Bad credit loans have come a long way. It used to be that borrowers with bad credit had only a handful of options for borrowing money, and most of those options often made a bad financial situation even worse. Thankfully financial technology has advanced in recent years, allowing online lenders to become an easy, safe solution when you need to borrow money with a low credit score.
What are bad credit loans?
Bad credit loans are personal loans that are made to borrowers with a low credit score, typically below 575 or 600. Lenders who offer bad credit loans know that a credit score is not the only way to determine if someone is willing and able to repay a loan. So many online loans for bad credit check for a steady income rather than just a credit score.
A bad credit loan is a personal installment loan and works the same way. You apply for the loan and meet the approval criteria. You’ll be offered a loan and you have the option to choose if the terms are right for you.
Because the loan is an installment loan, you’ll be offered a set amount of money and be expected to pay the loan back over a set amount of time. For example, you might borrow $1000 and pay it back in set monthly payments over the next 4 months. When you’ve made all the payments on the personal loan, you’ll have paid back the loan in full.
Lenders charge interest on all loans, so personal loans are not an exception. When you see the terms for a new personal loan, you’ll be offered an interest rate based on the risks the lender feels it is taking in loaning you the money.
Typically, the interest rate on a bad credit loan is higher than you’d find on a personal loan for someone with bade credit. The longer the terms of your loan, the higher the interest rate will likely be as well. But even with a slightly higher rate, personal installment loans are usually more affordable than credit cards or other types of emergency loans.
What do I need to be approved for a bad credit loan?
Since your credit score is not a factor for bad credit loans, you will need to demonstrate sufficient income to borrow money. If you’re in the majority of Canadians residents without income volatility, you should be able to qualify for a personal loan, even if you have bad credit. You’ll simply need to demonstrate the following:
- Sufficient, steady monthly income
- Canadian residency
- Your own bank account
- That you are eighteen or older
If you meet those criteria and have documents like bank statements, paystubs, and utility bills or such to demonstrate your eligibility to the lender, you should be approved and eligible for personal loans.
Finding the Best Bad Credit Loans
While some traditional banks may claim to offer bad credit loans, you’ll likely find better loan solutions through online loans. This is true for many reasons.
You’re more likely to be approved for online loans.
Traditional banks don’t typically approve loans for borrowers with bad credit. If you have bad credit, you may be invited to apply for a personal loan from a traditional bank, but you’re far less likely to be approved. That means you’ve wasted time, energy, and hope on an application that got you nothing in return.
You’ll get funds faster through online loans.
The use of financial technology makes online lenders nimbler and more expedient when it comes to processing loan applications. This simplifies the loan application process for borrowers.
You apply online through a simple form. You provide the supporting documents requested by the lender by uploading them through your application. Once approved, the lender can deposit funds directly into your bank account. Funds appear quickly, providing cash when you need it most.
You’ll pay less for an online loan.
Borrowing money means paying interest. Many options for borrowers with bad credit, like credit cards or emergency loans, have extremely high interest rates that create a debt cycle that is hard to break.
Online loans usually offer much lower interest rates and a set repayment schedule. Rather than continuing to pay the most interest on an expensive credit card every month, a personal loan lets you pay down the actual loan balance in a set number of payments. When you’ve completed the payments, you’ll have paid off the loan completely.
Is a Bad Credit Loan Right for you?
How do you know if a bad credit loan is the right choice for you? You’ll need to consider a few factors to determine if this type of loan is the right fit for you and your situation.
- You are looking to rebuild your credit. A bad credit loan is a personal installment loan. That means when you’re making payments on the loan, those on-time payments are being reported to the credit bureaus and boosting your credit score to help with future borrowing needs.
- You have sufficient income. You can apply for personal loans if you have sufficient income through almost any documented source. If you have a steady job or even steady income through government or pension benefits. Just be sure you have the documents to support that steady income over time before applying.
- You can repay the loan. Before you borrow money, be sure that you have the means to repay it. Adding a new loan payment every month when you’re already struggling to pay your current bills can create a budget crisis.
- You need the money. There are many reasons to borrow money through a bad credit loan, such as consolidating your debt or paying for an emergency. Borrowing money just because you can is likely not the best use of a bad credit loan.
If you’re ready to apply for a bad credit loan, we want to help. Here at AimFinance, our application process is fast and easy, helping you get the money you need with the terms you want.