In today’s world, credit plays an important role in our lives especially when it comes to taking loans. Unfortunately, not everyone has a great credit score due to various reasons like late payments, defaults, or even bankruptcy. And with a poor credit score comes the likelihood of getting declined by traditional lenders. However, there is hope for such individuals in the form of bad credit loans canada. In this post, we will discuss the advantages and disadvantages of bad credit loans.
1. Accessible and Quick
One of the biggest advantages of getting a bad credit loan in Canada is its accessibility. Unlike traditional loans, bad credit loans don’t require an excellent credit score. Lenders look past the individual’s credit score and focus more on their ability to make repayments. This makes it a good option for people in urgent need of money. Additionally, the entire loan process is quick, with most loans being approved on the same day or within a few days.
2. High Interest Rate
One of the biggest downsides of bad credit loans is the high-interest rate that comes with them. Since the lender is taking a higher risk due to the individual’s poor credit score, they offer a higher interest rate to offset the risk. This can make the loan costlier than traditional loans in the long run. Before taking a bad credit loan, it’s recommended to compare rates from several lenders to get the best deal.
3. Affects Your Credit Score
While bad credit loans in Canada are accessible, they can also affect your credit score. Late or missed payments on the loan can lower your credit score even further. So, it’s important to make timely payments to avoid further credit damage.
4. Collateral May Be Required
In some instances, collateral may be needed to secure a bad credit loan. Collateral refers to assets such as a car or a house that can be seized by the lender in case of non-payment of the loan. Though this may not be a disadvantage for some, it can be problematic for individuals who don’t have any valuable assets.
5. Smaller Loan Amount
Most bad credit loans in Canada are usually for smaller amounts compared to traditional loans. This is due to the higher risk involved, and lenders want to minimize their risk exposure. Therefore, if you require a large sum of money, bad credit loans may not be the right option for you.
Bad credit loans in Canada can offer individuals with poor credit scores a chance to access credit when traditional lenders have declined them. However, the high-interest rate and the potential to deteriorate your credit score make it imperative to approach these loans with caution. It’s important to research and compare rates from different lenders before committing to a bad credit loan.