Bad Credit Loans in Canada

Have you heard of bad credit loans? Your credit score is one of the biggest factors – sometimes the only factor – that goes into determining if you will be approved for a loan. In most cases, if your credit score is too low you will be denied a loan as the lender views you as too high of a risk to lend to. There are, however, some lenders that are prepared to loan money to anyone, even people with a low credit score.

Bad credit loans may seem like a good idea, but in reality, they should be avoided unless you’re absolutely desperate. Never take out one of these loans for a ‘want’ such as a new car, a bigger TV, or a vacation. They should be taken out with extreme caution for something unavoidable. Here’s why:

The Drawbacks of Bad Credit Loans in Canada

A bad credit loan is risky for the lender for two reasons: (i) bad credit loans are unsecured. If you do not make your repayment, the lender has no way of recouping their money. (ii) borrowers with lower credit score are more likely to not-repay the loan – their low credit score has indicated that this has happened in the past.

1. To compensate for these risks, lenders charge a premium interest rate. Whereas with a good credit score you might pay 5% in interest for a cash loan, with a bad credit loan you may be paying up to 50%! The reason for this is that the lender is trying to recoup as much of their money early on as possible, before the likelihood of defaulting on the loan gets higher.
2. Bad credit loan providers have sometimes been known to be predatory lenders, charging many hidden fees to ensure they get as much money out of a desperate borrower as possible, although the regulatory landscape for bad credit loans has tightened in recent years.
3. You may find yourself in an endless cycle of debt with bad credit loans. Borrowers often find themselves unable to afford to make the full payments and subsequently, roll their debt over into a new loan, which includes more fees and high interest. It can be a situation that becomes impossible to get out of.

Bad credit loans are not uncommon in Canada. However, it’s important that if you do decide to take out one of these loans, you do your research and ensure you are going with a reputable company rather than a loan shark. It’s imperative that you pay back the loan on time and in full if you want to build some credit as a result of the loan. If you default on any of the payments your score is going to get worse and worse, and you may find yourself in too big of a hole to dig yourself out of. Use extreme caution when taking on a bad credit loan.

Refresh Financial offers custom credit building solutions to Canadians wanting to increase their credit score. Our products are safe and effective, ensuring credit is built without going into debt.