Loan Articles

A bad credit loan is a type of unsecured loan offered to persons with poor credit who are unable to qualify for standard loans from mainstream lenders. Bad credit loans work like other loans in that applicants borrow a certain amount, which has to be repaid over a specified period of time. The interest rate is the main difference between standard and bad credit loans. This depends on the lender, but borrowers can expect to pay over 20 percent in interest charges. Thus, this type of loan is meant to help borrowers meet their short-term financial needs. It is not designed to be used as a regular source of funds because borrowing can lead to severe financial difficulty.

In Canada, the terms and conditions offered vary widely depending on the financial institution. Some lenders offer bad credit loans in the amount of $2,300 to $5,500 with terms between 3 and 5 years. These loans are suitable for borrowers who are exiting insolvency and seek to rebuild their credit. Loans of this type are also intended for persons who were victims of identity theft, students who want to build credit, as well as new immigrants to Canada. Other lenders provide bad credit loans in the amount of up to $1,500, offering much shorter terms. These range from 7 days to 42 days.
Bad credit loans of this type are suited for persons who need cash for car repairs or to pay the bills, but the interest rate can be extremely high. The APR reaches 600 percent with some lenders. Interest rates may be based on the borrower’s province of residence. Some lenders offer bad credit loans on the territory of British Columbia, Ontario, and Alberta only. In addition, loans can be secured or unsecured, but the latter are offered with a much higher rate of interest.

There may be some restrictions as well. For example, some lenders require a minimum income of $15,000 and active employment for at least three months. Bad credit loans may not be available to borrowers whose income is derived mainly from maternity/ paternity leave, employment insurance, worker’s compensation, disability, pensions, and other government supplements. Most lenders require that applicants are Canadian citizens, at least 18 years of age, employed, and paid by direct deposit.

There are certain advantages to applying for a bad credit loan. One is that the application process is easy and hassle-free, with many lenders offering online application process. No faxing is required, and borrowers can apply 24 hours a day. The money is deposited directly into the borrowers account. It is easy to qualify for such a loan given that perfect credit is not required. In fact, many lenders do not require credit checks. Bad credit loans are also cheaper than payday loans, and some of them are cheaper than credit cards.

Among the disadvantages of bad credit loans is the fact that they are suited for short-term needs only. Some lenders do not offer rollovers and extensions. Moreover, some financial institutions require fee payments every two weeks, at $15 per every $100 borrowed. As mentioned, the interest rate can be very high. For example, the total cost of borrowing can reach $315 for a loan of $1,500, and the amount of $1,815 is to be repaid in just 62 days.