Are you in the market for a personal loan? Read on to see how you can qualify for a bad credit personal loan in Canada.
How to get a personal loan with bad credit
At some point or another you’re probably going to need to borrow money. Whether it’s for debt consolidation, home renovations, car repairs or a new car purchase, a personal loan is always on the table. But how is your credit score, and how will it affect your loan qualification?
The answer to this question isn’t straight-forward. Like most things in finance, the answer depends on a lot of other factors. Taken into consideration by every lender are an applicant’s income, debt to income ratio, debt to assets ratio, security and a number of other factors.
How bad is your credit?
It’s a good idea to know where your credit score is before applying for a loan. Depending on your score, you might want to put off your application. For example, if your credit is absolutely terrible and you are carrying a lot of debt you might be better off avoiding more loans and working on a solution for your debt. It might be advisable to consider debt consolidation or settlement programs.
If your debt situation is in critical condition, don’t discount bankruptcy. It’s a viable option and in many cases it’s the right way to go.
Why is your credit bad?
On a more positive note, let’s look at your current situation and see how you can improve from there. What brought you to this position? You have to analyze your old habits and see how you can improve on them.
Acting responsibly with your debt obligations will demonstrate to lenders that you’re on the path to financial recovery, and that goes a long way when you are applying for a personal loan.
The key is understanding what your goals are. Where do you want to be in 3 months, 6 months, 1 year from now? Are you looking to purchase a house in the future? A good credit score is a necessity for a mortgage, especially one with a low interest rate, therefore working to improve your credit score by improving on past bad habits is great way to start.
Should you pay off some debts before applying?
If you have a wide array of debt accounts you may want to consider cleaning a few of those accounts out before applying for another loan. Lessening your debts will increase your debt servicing ratio which in turn will improve your chances of qualification.
What the lender wants to see
Personal loan lenders aren’t like the banks. Banks avoid personal loans because they are a riskier type of lending, which is why most individuals find their personal loans from other private lending sources. This means that lending guidelines change and fluctuate from lender to lender, and so qualification requirements vary which is why we always stress that individuals shouldn’t focus so much on one bad mark in their finances as lenders look at the bigger picture.
If you have bad credit it is advisable that you try to clean your slate a little bit to improve your chances of qualifying, but all in all your credit score is only one factor behind your qualification so it should not deter you from taking the next step and applying for a loan.