You can get a loan with a low credit score, but there’s some stuff you should know.
If you’ve got a low credit score and find yourself in need of a loan, don’t stress. Tons of Canadians have been in the same boat, and a loan could be a very useful tool that could even help improve your credit score.
But before you take out a loan, there are a few important details you should know.
Can You Get a Loan with a Low Credit Score?
There’s a misconception out there that if you’ve got a low credit score, you won’t be able to procure a loan. This can leave a lot of people in a tough spot; generally with loans, when you need one, you need one.
In most cases, there are loans available for folks with bad credit. However, you need to pay special attention to the terms of these loans and choose wisely.
Getting a Loan with a Bad Credit Score
Your credit score is used by potential lenders to determine how trustworthy you may be as a borrower. If you’ve got a great credit score, this tells lenders that you probably make your payments on time and have a good credit history. This will usually make them more likely to offer you a loan.
If you’ve got a bad score, lenders may decline to offer you a loan. If they choose to offer you a loan, they may only offer loans with very high interest rates, very high penalty fees, and an extremely strict repayment schedule.
But high interest rates on debt can compound—and fast. They can make it very difficult to get out of debt, sometimes dragging out the repayment of a small loan over years.
So if you have bad credit and are finding lenders will only offer a very high interest rate on a prospective loan, you may want to seriously consider holding off until you’ve increased your credit score. That interest rate could have an impact on your life for years to come.
When to Get a Loan With a Low Credit Score
Here’s the thing: these loans with high interest rates, strict repayment schedules, and tough penalty fees are offered for a reason. It doesn’t make sense that there should be no loan options out there for Canadians with bad credit scores.
These loan products fill that gap. Lenders are able to offer assistance to borrowers that might have a rough credit history while ensuring they are protected.
These loans can be powerful tools for Canadians, too: they get you money when you need it, and create a great opportunity to improve your credit score by making timely payments. However, if these loans aren’t managed carefully, you can wind up in worse financial shape than you were before.
Therefore, if you’ve got bad credit but can’t hold off on getting a loan, it’s critical that you repay your loan efficiently and on time. If you miss payments, or only make the minimum payment required, you could get caught under a mountain of interest charges.
Minimum payments typically direct most of your repayments onto the interest charges, not the principal balance. So when repaying a loan, you should aim to repay much more than the minimum payment every month. You should also make sure there are no penalty fees associated with paying your loan back more quickly than is outlined in the terms and conditions of your loan agreement.
These two strategies can help you to get ahead of those interest charges and keep the cost of your debt to a minimum.
Personal Loans for Low Credit Score
Alright, that was our warning spiel. Debt can be part of our lives, but it must be managed carefully, especially if you’ve got a low credit score.
Now, what loans are available to you?
In Canada, you can generally choose between a secured or an unsecured loan from many lenders. An unsecured loan means you don’t put up any collateral in order to procure the loan.
A secured loan means you offer something you own, like your car or house, to “secure” the value of the loan in case you default. This means the lender could confiscate your collateral asset if you don’t meet the terms of the loan contract.
Many Canadians with bad credit will opt for personal loans. You can read our full explainer on personal loans here.
Personal loans are distinct from payday loans.
Payday loans typically come with sky high interest rates and super short repayment periods. They can be considered predatory lending, because they don’t take into account a borrower’s ability to repay the loan, and they can create a debt trap for borrowers.
As a rule of thumb, it’s generally best to avoid payday loans at all costs. Even if you’re certain you could repay the loan in full, it can be too risky to chance falling behind by mistake.
Personal loans, on the other hand, can be a better option. Their payment plans can be short or a few years long, and they can be secured or unsecured. Typically, their interest rates may be lower than payday loans, which can make them a better option for many people.
Consider Mogo for Your Loan
As mentioned above, Mogo offers personal loans to all kinds of folks. But these rules still apply.
If you’ve got bad credit and you get approved for a MogoMoney loan, it’s still incredibly important that you aggressively pay back your debt as quickly as you can. Interest rates on loans for folks with bad credit are generally set as an industry wide standard, and therefore, MogoMoney interest rates can be high too.
But the difference is that we want you to pay your loan back. We don’t want you to be in debt. So our strategy as a lender is different; it’s our goal to make your borrowing experience stress-free and transparent from start to finish.
With MogoMoney, you can get a pre-approval that doesn’t impact your credit score, and a transparent loan experience that can help you get debt-free faster, so you can get back to saving.
To help you manage your debt, we offer a digital debt tracking interface so you’re never unsure about where you stand. You can track your repayment progress, and even unlock lower interest rates by making your payments regularly and on time.
Sometimes, we need credit. It happens. If you need to go into debt, just do it responsibly.
Got questions? Our MogoMoney loan specialists can help.
Just remember: do your research and choose wisely.
This blog is provided for informational purposes only.
1-Pre-approval is based on information submitted in your MogoAccount application and/or other information that indicates you could meet our underwriting requirements. Your pre-approval for credit remains subject to our credit approval process which includes but is not limited to income and identity verification and validation of information submitted through the Mogo.ca website. To meet our underwriting requirements further documentation may be requested from you. Minimum income requirements may apply for some products. Approval is not guaranteed and we reserve the right to deny services to you. Final approval is subject to review and verification of income and supporting documents provided.