Gaining access to a credit facility such as a new credit card or loan is becoming more difficult. Things can be horrible when you have a credit score that lenders deem “bad.”
Reacting to the general economic uncertainty, lenders have tightened lending standards for consumers across all major categories, including auto, mortgage, credit card, and consumer loans.
What happens when you face a financial emergency and your local bank cannot approve your loan request? In such a case, your best option will be to find a bad credit loan lender. Bad credit loans are designed to help individuals with less desirable credit scores access quick funds.
So, what are bad credit loans, and where can you get one? Read on to find out everything you need to know.
What Is a Bad Credit Score?
Different credit bureau companies generate credit scores based on their own credit-scoring model. However, the three leading credit bureaus in Canada use the FICO model that most lenders use to evaluate credit applications.
Based on the FICO credit scoring model, credit scores range between 300 and 850. Anything below 579 is usually considered poor, while scores of between 580 and 669 are considered fair. Credit scores between 670 and 739 are considered good, those between 740 and 799 very good, and anything above 800 is considered exceptional.
In 2020, the average national FICO score was 700. Individuals with credit scores in the fair to poor ranges (credit scores less than 670) may have trouble getting approved for loans.
What Are Bad Credit Loans?
A bad credit loan is a loan facility specifically designed for people with low credit scores or those with no credit history. These loans typically charge slightly higher interest rates to cover the risk, and the loan amounts will generally be lower.
Instead of basing the eligibility for a loan on a simple credit check, bad credit loan lenders evaluate your current financial status to determine whether you can afford to pay for the loan you are applying for plus interest.
So, even if you have a poor credit score but demonstrate your ability to repay the loan on time, the online lender will approve your loan request. Some of the common examples of bad credit loans include payday loans and cash advances.
Where Can I Get a Bad Credit Loan?
Sometimes, finding a bad credit loan lender can be challenging, but you don’t have to give up easily. All you have to do is stick to the process, and soon you will find someone willing to listen to you. Typically, you can qualify for a bad credit loan from any of the following options:
- Family/friends: It is relatively easier to borrow money from your close friends or family members even if your credit history isn’t that good.
- Online loans: There are plenty of online lenders with flexible terms to accommodate individuals with bad credit scores.
- Credit unions: Credit unions typically have flexible lending standards than traditional banks and may be willing to offer personal loans to members regardless of their credit history.
- Peer-to-peer loans: These loans are from an individual or group of individuals other than lending institutions.