The average Canadian now has more than $25,000 in debt, excluding mortgages. With an ever-increasing cost of living, it is easier than ever to find yourself in debt.
Even a small amount of debt can become a never-ending circle of late fees and rejected payments. This can quickly escalate into the involvement of debt collection agencies and eventually result in bad credit.
Having bad credit can negatively impact many aspects of your life. This can include your financial opportunities, living situation and mental well-being. Having multiple debts with various companies can be a confusing and stressful experience. So how do you escape this negative cycle?
The good news is that financial stability is still within your reach. Debt consolidation allows you to consolidate all of your debts into a single and more affordable monthly payment. It can be used to pay off a wide range of debts, including, but not limited to, credit cards, loans, retail store cards, tax debt, and child support debt. Also, see the best debt consolidation loan offers from all around Canada, namely in Edmonton, Toronto, Calgary, and also BC, Alberta, and Ontario.
A debt consolidation loan is a great solution to help you get out of debt. It helps to reduce interest charges and makes your debt easier to understand and manage. A debt consolidation loan can also result in one lower monthly instalment rather than multiple debt repayments.
How to Get a Debt Consolidation Loan with Bad Credit
Check and Monitor Your Credit Score
The first step to gaining and maintaining a healthy credit score is to check and monitor it regularly. This is the main instrument lending companies will use to check if you are a candidate for any kind of credit. In short, without a good credit score, you will not be eligible to obtain loans or credit cards from a reputable company. You may be forced to use companies that charge extremely high-interest rates.
Your credit score can often change, based on factors such as making your payments regularly and on time. Those with a good score will be able to borrow money with a lower interest rate, meaning that you will pay less money in the long term. Credit scores in Canada range from 300-900. A score above 600 is regarded as good, and a score above 750 is regarded as excellent.
Improving your credit rating is not a quick process. However, becoming more adept at checking and monitoring your credit score is a vital step for improving poor credit. A common misconception is that repeatedly checking your credit score can have a negative impact on your overall rating. This is entirely incorrect. Checking your credit rating will have no negative impact whatsoever. However, it will ensure that you are always aware of your personal credit information.
Shop Around
Even though researching debt consolidation loans can feel like an overwhelming process, it is very important. You need to shop around to ensure that you are making an informed and sensible decision. Additionally, you want to make sure that you are getting the best available rate. However, do not apply for multiple loans at the same time.
Every time that you apply for a loan, it can have a negative impact on your credit score. You should, therefore do your research. Contact potential lenders to check whether you are likely to be accepted for a loan before completing only one application.
You also need to decide what type of debt consolidation loan you are interested in. Different lenders will have different interest rates, monthly repayment amounts and loan lengths. You could also consider whether you want to apply for a normal personal loan, a debt consolidation loan or a consolidation credit card.
Consider a Secured Loan
A secured loan is a loan that is supported by collateral. For example, a mortgage or a car loan has your house or your car as collateral. If you then default on your payments, the loan company can seize these assets as an alternative payment.
A secured loan is considered to have less risk for the lender, so it is, therefore, easier for you to meet the requirements. A secured loan can be a good option for people with poor credit, as you are more likely to be accepted.
A secured loan will enable you to acquire more money than a non-secured debt consolidation loan. It will also have a lower interest rate, and the monthly payment is usually more affordable. Unsecured loans often have high-interest rates that are up to twice as high as secured loans. This means that it will take you much longer to get out of debt (see best second chance credit cards here).
A secured loan for consolidation will require you to use property such as your home or car as collateral. You could also use other assets such as jewellery, investment accounts or other valuable items that you own. A secured loan is one of the best options for debt consolidation if you are confident that you can afford to keep up with your repayments.
Wait and Improve Your Credit
Rebuilding your credit rating takes time and patience. You may have built up debt and now find yourself with poor credit. In this situation, it is easy to debate taking out another credit card or loan to try to ease your debt.
However, sometimes the best course of action is to wait and try to improve your credit. Applying for loans when you have bad credit usually means will not be accepted for loans with a lower interest rate.
If you try to improve your credit rating before applying for a loan (even one for debt consolidation) you may find that this financially benefits you. So how can you do this?
- As mentioned earlier, it is important to check your credit rating frequently.
- Make a detailed list of your debt and make a payment plan.
- Contact your lenders directly. If you are struggling with making payments on time or the amount you need to pay is too high, you shouldn’t ignore it. If you contact the lender, you may be able to make an arrangement that makes your repayments more achievable.
- Making payments on time is key, even if this is only the minimum repayment.
- Improve your financial practice. Spend smart and save where possible. Create a budget and try to stick to it. If possible, don’t allow your debt to get any higher.
- Never go over the agreed limit on your credit card or bank account.
Do You Have Bad Credit? Here’s Who Will Offer You a Loan
Credit Unions and Local Banks
Getting a debt consolidation loan with credit unions or banks is a popular choice. This involves the credit union or bank giving you money to repay your outstanding debt. They then bring all of your debts together into one simpler debt consolidation loan. This means you will only have one monthly payment. Credit unions and banks will usually offer you the best interest rates.
So what is the difference between a credit union and a bank? Both offer very similar services. They both offer debt consolidation loans, credit cards and checking and saving accounts. However, banks are for-profit institutions, whereas credit unions are non-profit.
Banks are owned by shareholders, and their main aim is to maximize their profit. Credit unions are cooperative institutions and can only do business with their own members. They focus less on profit and more on what is in their clients’ best interests.
Banks usually offer the lowest interest rate on the market. Credit unions usually have the lowest fees. Both options are therefore seen as attractive possibilities.
However, traditional lending institutions such as banks and credit unions are typically very difficult to get debt consolidation loans from. Banks in Canada usually require you to have a good credit history and minimal debt. Additionally, they often ask you to provide collateral against your loan amount.
Banks and credit unions have recently tightened their regulations even more. Those with any kind of unpaid debt will be unattractive loan candidates to banks. If your credit score is above 650, you are more likely to be accepted for a consolidated loan.
Online Lenders
If obtaining a debt consolidation loan from a traditional lending institution is not a possibility; an online lender is another option to consider.
Online lenders often provide debt consolidation loans known as ‘bad credit loans’. These loans do not require a high credit score. This usually means that the available amount that you can borrow will be lowered and the interest rate will be higher.
Several online lenders offer loans for those with bad credit.
Interest rates vary hugely depending on the provider you choose and the loan amount. If you are looking for a debt consolidation loan with an online lender, always contact the providers to confirm the interest rates.
Our top recommended online lenders for those with bad credit are:
1. LoanConnect
Loan Connect is an online lending platform. It acts as a middleman between you and the loan provider. Loan Connect offers debt consolidation loans from a number of providers. They are also partnered with lenders that specialize in bad credit loans.
LoanConnect has no minimum credit score requirements. This means you can apply for a debt consolidation loan regardless of your credit score.
You can choose to do a general search for debt consolidation loans or apply for pre-approval. If you choose pre-approval, LoanConnect will access your credit score. You will then be shown a list of loan providers that are likely to accept your application. You can then tailor your search further and customize your loan based on your requirements.
Let’s take a look at some of the pros and cons of applying for a loan with LoanConnect.
Pros
- There is no minimum credit score or annual income requirement.
- Loans are available between $500-$50,000.
- You can choose your own loan term. Loan terms range from 6-60 months.
- Searching for loans on LoanConnect does not affect your credit score. The online platform is user-friendly and completely free.
- LoanConnect is partnered with debt consolidation loan providers and bad credit lenders. This increases the likelihood you will be accepted for a loan.
- LoanConnect offers 12 different types of loans.
- There is no obligation to commit to a loan, even if you apply for pre-approval.
Cons
- If your debt is more than 60% of your income, your loan application will not be accepted.
- Bad credit loans have higher interest rates.
2. Loans Canada
Loans Canada is a lending platform that partners with loan providers across Canada. They are partnered with a huge number of lenders across Canada, including bad credit lenders. They also offer debt consolidation loans.
Loans Canada acts as a search engine. You enter personal information, such as your assets, income, and credit score. You then input the details of your desired debt consolidation loan. Loans Canada will then provide you with a list of potential lenders.
Loans Canada will then act as a middleman between you and the lender. There is no maximum debt limit when applying for a loan with Loans Canada. This means that even if you have substantial debt, you may still be accepted for a loan.
Loans are available up to $300,000. Loan terms range from 6-60 months.
Let’s take a look at some of the pros and cons of debt consolidation loans from Loans Canada.
Pros
- There is no minimum credit score and annual income requirement.
- You can choose to take a secured or unsecured loan. Secured loans usually allow you to borrow a higher amount.
- Loans Canada displays your loan options in an easy-to-understand chart. This makes it much easier to compare lenders and loan terms.
- The Borrower Community asks borrowers to rate and review lenders. Loans Canada will then remove any lenders from their platform who have consistently bad reviews. You can easily access previous borrowers’ reviews.
- Loans Canada offers free tips and advice on a variety of financial topics.
- You can receive your funds within 48 hours.
Cons
- Bad credit loans usually have a much higher interest rate attached.
- You may incur financial penalties if you pay your loan back early.
3. Mogo
Mogo has provided more than 1.6 million loans to Canadians in the last 20 years. They have been rated as one of the best online loan providers in Canada.
They offer a variety of financial products. This includes personal loans, mortgages, VISA prepaid cards and cryptocurrency trading.
Their personal loans boast fast approval within three minutes. Once your loan has been approved, you are likely to receive the funds the same day.
Mogo has a free credit score service. They will provide you with free access to your credit score and use this information to show you which loans you are likely to be accepted for. You will also see an estimate of your interest rate and repayments.
Mogo also offers loans if you have a bad credit score.
Personal loans are available between $100-$35,000. Loan terms range from 9-60 months. APR ranges from 5.9%-46.96%.
Below are some of the pros and cons of choosing Mogo as your loan provider.
Pros
- The credit score feature allows you to view your credit profile from previous months. You can compare previous months to your current score. You can also view detailed information on how your score has changed. Mogo also offers tips on how their customers can improve their scores.
- Mogo provides a 100-day test drive feature. If you are not completely satisfied, you can cancel your loan and pay back your principal. Mogo will then refund any interest or fees you have paid.
- You can pay off your loan at any time, with no financial penalties.
- The online dashboard and mobile app are user-friendly and offer useful features. This includes payment information, credit score features, and the purchase of cryptocurrency.
- The Mogo Rewards Program offers some great perks. This includes free Bitcoin, free fraud identity protection and a free MogoCard.
- You can receive daily Money Moves tips and advice. Topics include how to save money, avoid debt and improve your credit score.
- Signing up for Mogo is completely free.
Cons
- There is a minimum credit score requirement of 540.
- Interest rates can be very high for those with a bad credit score.
4. Borrowell
Borrowell has more than 50 financial partners across Canada and is the largest online lender in the country. More than a million Canadians are currently signed up to their online platform.
Borrowell acts as a loan search engine. They match you with the loan provider that best suits your requirements. They will then act as a middleman between you and the loan provider.
Borrowell also specializes in bad credit loans. These loans are recommended to individuals with a credit score lower than 575. If you are unsure, Borrowell also offers access to your credit score free of charge. This helps you to avoid being rejected for a traditional loan, which can have a negative impact on your credit rating.
Loans are available between $500-$35,000. Loan terms range from 6-60 months.
Let’s take a look at some of the pros and cons of Borrowell.
Pros
- Borrowell customers have seen their credit score rise by an average of 15 points after using Borrowell’s services.
- A hard credit check is not performed until you submit a loan application. This helps to protect your credit score.
- Flexible repayment options are available.
- If you have experienced bankruptcy, you can still apply for a loan.
- Borrowell offers multiple debt consolidation offers. You can opt for a traditional debt consolidation loan, a home equity loan, or a balance transfer credit card.
- You can receive free weekly updates on your credit score. You can also receive personalized tips on how to improve your score.
- You can choose a secured or an unsecured loan.
- Once you have been provided with a list of loan options, you can tailor your search to include specific requirements such as your preferred loan term.
Cons
- Borrowell may have strict eligibility requirements. This includes a minimum annual income requirement of $20,000 and a minimum credit history of 12 months.
5. Fairstone
Fairstone has been a leading provider of loans for more than 100 years. They offer a variety of loan options, including debt consolidation and bad credit loans.
Fairstone offers a useful loan calculator on their website. You input your personal details and information about your required loan. You will then receive a list of quotes. You can toggle the options to see how payment frequency, loan term and loan amount can affect your repayments.
Debt consolidation loans are available from $500-$50,000. Loan terms range from 12-120 months. You can receive a debt consolidation loan quote and customize your preferences. You will then be connected with a 1:1 lending specialist. The lending specialist will help you to find the perfect debt consolidation loan for your needs.
Below is a list of the pros and cons of Fairstone’s debt consolidation loans.
Pros
- Multiple repayment options are available. You can choose from bi-weekly, semi-monthly, and monthly.
- You can opt for a secured or unsecured loan.
- Homeowners will have access to lower rates and higher lending amounts.
- Loans can be tailored and customized to fit your requirements.
- The online platform is free of charge and easy to use. It also offers additional features such as educational resources and debt management tools.
- Funds may be deposited into your account the same day your application is accepted.
- Fixed interest rate loans are available.
- Fairstone has a 98.7% customer satisfaction rate.
Cons
- Larger loan amounts are not available.
- Individuals with a credit rating lower than ‘fair’ are not likely to be accepted for a loan.
Debt Consolidation Alternatives: Debt Management Plan (DMP)
A Debt Management Plan is a debt repayment system that aids you in repaying your debts within the allotted timeframe of five years.
One of the advantages of using a Debt Management Plan is that the agency involved works in a non-profit capacity. The credit agency will consolidate all of your debts together. They will charge you one monthly payment and then take responsibility for paying that money to your debtors. A Debt Management Plan necessitates you to repay 100% of your debt.
Debt Management Plans are often used by people who do not qualify for traditional debt consolidation loans. You should only consider this option if you are sure that you can afford the monthly repayments. They are also more advantageous to people who have higher debt (i.e. above $10,000).
Advantages:
- Only one payment per month.
- You will pay less interest overall.
- As the agency is non-profit, you can be assured they will organize the best repayment plan for you.
Disadvantages:
- It is not a legally binding agreement and is instead voluntary. This means there is a possibility that not all of your creditors will agree to the plan.
- A Debt Management Plan will appear on your credit file for up to 3 years after you have completed your payments. This can negatively affect your credit rating if you, for example, wanted to apply for a credit card in this timeframe.
Consumer Proposal
An alternative option to a Debt Management Plan is a Consumer Proposal. If you cannot afford to repay your debt or cannot feasibly keep up with your payments every month, your best option may be to take out a Consumer Proposal.
This will involve working with a Licensed Insolvency Trustee (LIT). They can reduce the amount of debt you will have to repay by up to 85%. A LIT will examine your budget to calculate the amount you can realistically afford to repay.
Advantages:
- It is a legally binding agreement, approved by the court.
- You do not need to repay your debt in full. It is possible to get a significant debt reduction.
- Only one payment per month with less interest paid overall.
Disadvantages:
- The impact on your credit score is greater and can take longer to clear from your file.
- Can be costly to set up as you need to pay a fee to file your proposal, a setup fee and an additional fee to your trustee.
Using Your Home Equity
Using your home equity to help you repay your debt is another alternative to traditional debt consolidation loans. Your home equity is the difference between how much is still remaining of your mortgage and the value of your house.
For example, if you owe $80,000 on your mortgage and your house is worth $300,000, your home equity is $220,000. Home equity loans typically have lower interest than a personal loan or an unsecured debt consolidation loan. There are four main options available for using your home equity for loans consolidation:
- Refinancing your home – This involves borrowing up to 80% of your equity. Take into account this may change the interest rate of your remaining mortgage.
- Obtaining a second mortgage – This involves taking a second loan against your home. The second loan is secured against your equity. Remember you will need to repay both loans at the same time. The interest rate on a second mortgage is usually higher than the first.
- Borrowing the amount that you prepaid – If you make a prepayment on your mortgage, you could borrow 100% of this prepayment amount.
The Bottom Line
Debt consolidation may help you get out of debt faster and save you money in the long run. There are different options available for repaying your debt in the way that best suits your financial situation. Ensure you do your research and consider all of your options before making a decision.
If you decide a debt consolidation loan is the best option for you, make sure you keep up with your monthly repayments. Hopefully, if you follow all the steps, financial stability and good credit may be just around the corner.
