Loans are a normal part of life. They help us overcome certain financial challenges or also step up to the next stage of your life. This can include funding for things such as your education, mortgage, a new car or to get out of financial emergencies. You should therefore never fear to borrow when you have a financial emergency. After all, you are not the only Canadian relying on loans to get by as The Bank of Canada reports that, at the end of 2017, Canadian households owed a total of $2 million.
Debt can help you to smooth out your spending but if left unmanaged it can deny you numerous credit opportunities. This is because lending institutions always evaluate your debt history before considering you for any new loan. One of the tools that lenders use to determine your creditworthiness is your credit score. Poor credit score lowers your chances of getting a loan especially from a majority of the traditional lenders. This article will guide you on how you can get a loan despite having a bad credit rating.
How Credit Checks Influence Your Eligibility for a Loan
Credit checks are simply inquiries into your financial history as recorded by lending institutions. All lenders issue reports of your lending and repayment details to credit bureaus. The credit bureaus compile your data using a scoring system and allocate you a credit ranking. When you have bad credit your score ranges from 300 to 650. Good credit, on the other hand, is any score near 850. A high credit score is normally as a result of your prompt repayment of loans and credit card debt. This proves to lenders that you will repay their cash without fail and makes them more willing to give you a loan.
Traditionally, financial institutions always conduct a credit check to know the likeliness of you repaying the money they lend you. If your credit score is poor, then they can easily reject your approval. However, nowadays lenders never rely on your credit scores only to review your loan application and as such the rise of no credit check loans.
No Credit Check Loans
Even if bad credit indicates that you may have missed some loan or credit card repayments, it is not a true indicator of your creditworthiness. Sometimes you can miss or forget some payments by accident. At other times, you might get strained and feel the need to max out some of your credit cards. Modern lenders understand this and this is why they are willing to give you a loan even when your credit rating is poor.
Modern lenders never promise to throw credit checks out of the window when they review your loan application. They normally do a soft credit check which is a general review of your financial history and never really hurts your credit rating. If they were to do a hard credit check, which is deeper and more detailed, your credit score would lower. The lenders consider things such as your employment status which shows your potential to afford repayment.
One of the common characteristics of no credit check loans is high interest rates. Since the lenders take a huge risk by giving you the loan, they impose higher rates to cover themselves. A majority of the loans you might get without credit checks are also short term. To ensure that you make a credible application, consider the following tips:
- Compare lenders
Things such as interest rates and prequalification requirements vary from one financial institution to the other. As such, you have to research widely and know the lenders who best fit within your lending needs and can give you the most affordable loan.
- Take only the amount you need and can afford to pay seamlessly
If you take a huge loan you might get strained to repay it later on and when you cannot afford it you might have to take another loan and this can gradually entrap you in a spiteful loan cycle. This involves you having to borrow more to take care of your current loan and taking another loan afterwards to repay the one you had taken earlier. This process will leave you in serious financial desperation because you will never be able to do anything tangible with the money you earn.
- Check the lender’s legitimacy and credibility
Numerous lenders have mushroomed and you should be careful to ensure that you only take the loan from one who is genuine and properly approved. Also, they should have a great reputation as unscrupulous lenders can have unfavourable terms to take advantage of your desperation.
- Pay on time
If you fail to repay promptly you might get slapped with penalties. The lender may deduct funds from your bank sometimes even without your authorization and leave you at a compromised financial situation. This is because you may have not paid some of your other serious financial commitments and might be left with zero cash to take care of them. This returns you to a worse position than the one you were in when you initially sought the loan. Timely repayments are also ideal because the lenders report them and your credit score is improved gradually.
What are the risks?
Loans without credit checks may sound like a godsend but they have a couple of shortcomings. This is why you should make them your last alternative. Some of the things that may make you to reconsider taking a no credit check loan include:
- Massive interest rates
Contrary to other traditional loans, no credit check loans attract high interest rates to justify their suitability to high-risk borrowers. The financial institutions know that a majority of the borrowers may have poor credit ratings and limited credit options. As such, they impose high interest rates on their loans to water down any losses due to defaults.
- Hefty fees
Even though fees are common for all types of loans including the traditional forms, the ones imposed on the loans without credit checks are more severe. Some of the common fees include those imposed due to late payment and even early termination fees when you feel like paying the loan early.
- Extended repayment periods
It might sound like you get a relief when the financial institution offers to extend the time you can take to repay the loan. However, this is a disguised curse because you end up paying more for longer periods. This is because the interest rates are already high and as such the lender gets to profit more when you take longer periods to repay.
- Automatic payment deductions
Until you have fully repaid your loan, the lender will subtract equal amounts from your bank. This means that you might have lesser cash to take care of other pressing issues. When you have some rough periods and zero funds are available to be subtracted you might get hefty penalties.
Are there any Alternatives?
The best thing you can do to yourself is to improve your credit score to qualify for cheaper loans in future. Alternatively, for a pressing financial need you could try any of the following:
- Visiting your lender
If you have not visited your lender to check the options that might be applicable for your financial situation, it might be a wise option to do so. When you have already established a great relationship with them, they might be inclined to offer you the loan. This can apply for credit unions or community banks whose policies tend to be laxer.
- Getting a cosigner
A cosigner is simply an individual with a higher credit rating or better creditworthiness who can easily get a loan from the financial institution you have approached. Since the cosigner acts as a guarantor, the lender is assured of getting their money back. The guarantor assumes liability should you be unable to repay the loan meaning that lenders will rarely fail to get paid.
- Borrowing from family or friends
Friends and family can give you the money you need and you might have to pay minimal or even zero interest. As such this is a great alternative if you can find some close people to lend you the money. However, ensure that you repay them promptly or otherwise you destroy your relations.
Being deep in debt is never a good thing. On the other hand, taking up a loan to smooth out your life is a wise decision. No credit check loans are one of the best alternatives when you need quick cash but are in debt or have a poor credit rating. However, you should do your research well before taking such loans to avoid unscrupulous lenders with the aim of tying you into a vicious debt cycle. At Bonsai Finance, we specialize in linking you with credible Canadian lenders for you to get a swift loan at the comfort of your home. Contact us today to get help to sort your financial emergency.
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