Getting approved for a personal loan can be challenging when you have bad credit, but it’s not impossible. Whether you need cash loans for an emergency expense or to pay off high-interest debt, there are lending options available.
This guide will provide tips on types of loans for bad credit borrowers, required documents, costs, and how to get approved for a $1,000 – $5,000 loan in Canada.
Why You May Get Declined for a Loan
Lenders want reassurance you can pay back the loan. If you’ve been rejected before, it’s likely due to having bad credit.
Reasons for Loan Rejection
The main reasons applicants get denied loans are:
Poor credit scores – Most lenders require borrowers to have good or fair credit. If your score is below 600, you’ll likely get declined.
Not meeting income requirements – You must have an adequate steady income to qualify for a personal loan. Minimums depend on the lender but typically range from $1,000 – $2,000 monthly.
Credit Rating Systems in Canada
Canada mainly uses credit scores from 300-900 to determine your financial health:
- 300-559 = Bad Credit
- 560-659 = Fair Credit
- 660+ = Good/Excellent Credit
Anything below 660 is generally considered a poor score by lenders.
Factors Impacting Your Credit Score
Payment history – 35% of your score relies on timely loan and bill payments.
Credit utilization – 30% relates to how much of your available credit you use.
Other factors include the type of credit accounts, history length, and new credit inquiries.
Making late payments, defaulting on loans, and maintaining high balances can cause significant damage to credit scores.
Types of Loans for Bad Credit
Just because you have bad credit doesn’t mean you can’t qualify for loans. However, you’ll likely need to look at alternative lending options beyond big banks and focus on borrowers with good credit scores.
Online Lenders
Online lenders cater specifically to borrowers with bad credit. They offer quick online applications and funding, with various loan types available. The main downside is that interest rates tend to be higher than banks. There’s also potential for predatory lending practices with some online lenders. It’s wise to thoroughly research lenders like Spring Financial and Loan Away specialize in bad credit loans while maintaining responsible lending standards.
Peer-to-Peer Lending
Peer-to-peer lending networks like goPeer connect you directly with individual investors looking to fund loans. This personalized approach carries the potential for competitive interest rates. However, the peer lending model means your loan must obtain full investment funding from individual lenders before you receive money, which can delay access to funds. Most peer lending platforms also require minimum credit scores in the good credit range, making approval difficult for those with scores below 660.
Loans from Banks
You may think big banks are out of the question for bad credit borrowers, but they can still be an option in some cases. The main advantage of obtaining a personal loan from a reputable bank is they generally offer the lowest interest rates, but usually only to applicants with good credit. Qualifying for a bank personal loan with a poor credit score under 600 will be challenging unless you go the route of a secured loan or find a cosigner to strengthen your application. Bank loan applications also tend to be more lengthy and tedious when compared to online lender options.
Required Documents and Qualifications
Lenders will want to verify your ability to manage loan repayments. Be ready to provide:
Income Requirements
You’ll typically need:
- Minimum monthly income of $1,000 – $2,000
Supporting Documentation
Have these items available:
- Bank statements proving income deposits
- Recent pay stubs from employer
- Utility bills confirming your address
Bringing a cosigner on your application can further assure lenders that repayments will be made. Their income and good credit can offset negative factors on your application.
Types of Fees
Common fees from lenders include:
Origination Fees
This upfront processing fee is deducted from your loan amount. Typical amounts are 1-6% of the loan value.
Late Payment & NSF Fees
If you miss payments, you may be charged late fees of around $30 per missed payment in addition to fees from your bank for non-sufficient funds.
Early Repayment Fees
Online lenders typically don’t charge early repayment penalties if you pay your loan off faster. But some banks and credit unions do to recoup lost revenue.
Optional Loan Protection Insurance
Some lenders offer optional credit insurance to cover your loan payments if you lose your job or income. This insurance adds extra costs that likely outweigh the benefits unless you’re in a shaky financial position.
Tips for Getting Approved
When applying for $1,000 – $5,000 loans for bad credit, consider these tips to strengthen your approval chances:
Explore Secured Loan Options
Providing an asset like your car’s title or funds in a savings account as collateral can open doors to lenders that normally reject applicants with bad credit or low income.
Find a Trustworthy Cosigner
Adding a cosigner to your application means they become equally liable for the loan. But their income and good credit can improve your chances of approval substantially.
Check Your Credit Report
It’s wise to review your credit report from Equifax and Transunion before applying for loans. Knowing your true score and checking for errors allows you to set proper expectations.
Manage Existing Debts
Lenders view borrowers with high debts compared to income unfavorably. Pay down cards and other debts or transfer balances to lower-interest accounts to lessen this impact.
Compare Multiple Lender Options
Each institution uses different eligibility criteria and risk models when reviewing applicants. Comparing rates and terms from top bad credit lenders improves your chances over a single application.
Meet Minimum Requirements
At a minimum, you’ll need steady employment or income over $1,000 monthly. Checking that box along with providing proof, sets you ahead of the curve.
Applying for a $1,000-$5,000 Personal Loan
Here’s the basic online loan application process to follow with lenders:
Online Application Form
Complete a secure online application form with the lender providing your contact, income, identification, and employment information. Approvals can take minutes up to a few days.
Awaiting Approval Decision
The lender reviews your full application and documentation once submitted. Most lenders provide a quick initial decision after soft credit checks then finalize after hard checks.
Signing Loan Agreement
If approved, you review the finalized terms for rates, fees, loan amount, and repayment schedule. E-sign any loan agreement forms if you accept the offer.
Receiving Approved Loan Funds
Finally, approved loan funds get quickly transferred into your chosen bank account once final steps are taken. Timing varies between the same day to a couple of weeks.
Getting approved for personal loans with bad credit can feel impossible when banks turn you down. Thankfully, alternative online lenders like Cash in 24 exist to provide Canadians access to much-needed funds, even with damaged credit.
Get Fast Personal Loans for Bad Credit with Cash in 24
When you have bad credit, it’s easy to feel defeated and that accessible financing will never be possible again. But Cash in 24 offers personal loans ranging from $350 up to $50,000 to borrowers with poor credit or no credit history.
Cash in 24 understands that life happens and sometimes that means financial mistakes that hurt your credit score. Whether from unpaid medical bills, job loss, or other unfortunate circumstances – they don’t believe past issues should block your financial future.
That’s why Cash in 24 provides guaranteed approval loans through a 100% online application designed to get you quick cash loans seamlessly.
Cash in 24 Offers Loans to All Credit Types
The dedicated team at Cash in 24 accepts all types of credit backgrounds:
- Bad Credit
- No credit history
- Past bankruptcies
They know when other lenders shut their doors on you, it can feel hopeless. But Cash in 24 is ready and eager to review your situation to provide much-needed personal loans ranging from $350 up to $50,000.
Gone are the days of long waits at physical bank branches only to get denied. With Cash in 24, the entire application takes just minutes online and loan decision times are lightning fast.