How to Qualify for Installment Loans with Bad Credit in Canada

Posted on: September 14, 2023

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Qualifying for installment loans with bad credit in Canada can be very challenging, particularly after a bankruptcy or consumer proposal.  This is because your credit score plays a role in the rate you qualify for.  Financial lenders have to consider your relative risk as a borrower to pay back a large amount of money. With good credit, you could be offered a lower interest rate. If you have a bad credit history, you could still be eligible for financing, but it may come with a higher interest rate.

What is a credit score?

Your credit score represents your propensity for paying back what you borrow. Lenders use it to see how you’ve previously borrowed money and your reliability in paying it back to consider how suitable you are to receive financial credit. So it would be, when you take out a loan, every time you make an on-time scheduled payment, your credit score improves. In contrast, any time you miss a scheduled payment on the loan, your credit score worsens.

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What is considered “bad credit” in Canada?

Generally, credit scores above 700 are considered good. Most lenders will see you as a low-risk borrower, making you more likely to get approved for a loan with a lower interest rate. On the other hand, credit scores that fall below 560 are generally considered as “bad credit” in Canada which makes it harder to get approved for a loan and could result in having to pay a higher interest rate.

How a consumer proposal and bankruptcy affects your credit score

When a licensed insolvency trustee helps you file a consumer proposal or bankruptcy with your creditors, a note is placed on your credit report, and you’ll receive an R7 credit rating for a consumer proposal or an R9 rating which means you have declared bankruptcy. To put that in context, R1 is the best credit rating possible, an R7 status, is the third lowest rating,  while R9 (bankruptcy ) is the worst score.

The good thing is that bad credit or an R7 or R9 credit rating doesn’t stay on your history permanently. It sits on your credit report for 3 to 6 years. There are steps you can take to rebuild your credit faster and show creditors you’re taking steps to responsibly repay your debts.

One of the benefits of Installment loans for bad credit is that they give you a chance to build a good credit score. It is one of the safest ways to rebuild your credit, providing you keep up with your repayments. When you pay off an installment loan on time, this contributes to your credit score, and a long track record of on-time payments will slowly build up a good credit rating. With regular on-time payments, your payment history will soon show that you can pay back borrowed money consistently over time. A better credit score will make it easier to apply for loans and credit cards in the future, and you’ll also be eligible for better rates.

Can I get installment loans while in a consumer proposal or with a bad credit score?

Having a bad credit score isn’t the end of the world. In fact, bad credit is not uncommon in Canada. A recent StatCan study showed that over 17% of Canadians have a credit score below 560, which makes nearly 1 in 5 Canadians looking for bad credit loans at some point in their life.

While obtaining a loan can be extra challenging for those with poor credit or those in a consumer proposal, it’s not at all impossible.

The fact is there are going to be some lenders that won’t provide installment loans to those with poor credit, not to mention the increased risk associated with a consumer proposal. Frankly, you will have an easier time getting approval if you wait until your proposal is finished. However, you can still obtain a loan during your payment schedule. Approval will be much more difficult, but you will find many private lenders that specialize in providing loans to people with bad credit scores. Keep in mind, however, that they will typically charge a higher interest rate since you will be considered a higher-risk borrower.

The key to getting bad credit installment loans in Canada is to be able to show that you will not have difficulties repaying the loan or risk defaulting.

Here’s what to expect when you apply for a bad credit loan during your consumer proposal:

  • Lenders will look closely at your credit history and finances to determine your creditworthiness.
  • You’ll need to provide proof of steady employment and income.
  • Expect lenders to contact your consumer proposal administrator or Insolvency Trustee to discuss your financial situation and your commitment to your proposal terms.
  • You can expect your trustee to provide guidance and advice on loan terms and interest rates and also recommendations on lenders to make sure you’re taking on a loan that you can afford.
  • You will need to prove to your Licensed Insolvency Trustee and lender that you will be able to manage making both consumer proposal payments and potential loan payments.

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What are my options for getting a loan with bad credit or while in a consumer proposal?

“How to get an installment loan with bad credit?”, many of you may be thinking and bad credit loans are designed to help Individuals with limited borrowing options to access funding when other options aren’t available. However, some products can be costly and predatory. If you’re facing a financial emergency or unexpected expense, there are some types of installment loans for bad credit in Canada that may be low-risk alternatives.

Secured loans

Secured installment loans require you to provide a personal asset as collateral, such as a car or house, to protect the lender in case you default on payments. Because there is security for repayment of the loan, lenders are generally more willing to approve borrowers with bad credit and offer low interest rates.

Unsecured installment loans for bad credit

Unsecured loans do not require the borrower to put up any collateral. A major disadvantage is that they may have higher interest rates and stricter approval requirements, especially for applicants with bad credit.

Guarantor loans

Guarantor loans require a cosigner with good credit who will be responsible for paying back the entire loan if the borrower can’t. This can make it easier to get approved for a loan if you have bad credit, but make sure you can keep up with the payments to avoid any risk to your guarantor who will be responsible for the loan if you default.

Installment loans for bad credit offer flexibility, you can choose the loan amount, repayment period, and payment frequency that work best for you. With predictable payments, you’ll know exactly how much you’ll need to pay each month, making it easier to budget and manage your finances.

It’s also best to keep in mind that you may be more likely to be approved for a secured loan than an unsecured one when getting a loan with bad credit.

Find installment loans for bad credit in Canada with our insolvency trustees

When you apply for installment loans for bad credit in Canada, it’s crucial to prepare thoroughly before submitting your loan application. It may be difficult to obtain loan approval, but it is possible if you can prove your creditworthiness.

Do a lot of research before applying to compare lenders and explore your options to find alternative, private, or bad credit lending sources that are legitimate lenders. Watch out for predatory lenders that charge unreasonably high interest rates than are legally permitted for installment loans in Ontario. Be careful of fake lending sources that may steal your financial information.

A licensed insolvency trustee can review your situation and speak to you about solutions that may be much less expensive and work closely with you to make sure you’re getting the right loan for your financial situation.

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    Since 1992, Richard Killen & Associates, a Licensed Insolvency Trustee, have helped thousands of people resolve their financial problems. With 25 years experience in this industry, our president, Richard Killen, and the rest of our team understand the difficulties that honest people can sometimes find themselves in. This expertise makes it possible to provide you with a service that effectively deals with the issues.

    Serving the GTA for 25 years