Why the banks decline you
Rejection hurts. If you’ve ever gone to a bank to apply for a loan, and then had the big red NO stamped on your application, you know that gut-sinking feeling. Most of the time applicants are denied loans because they have a negative credit score. If you were unsuccessful in obtaining a loan, it might be because you have bad credit too.
Credit scores range from 300 to 900. The table below provides a general guide on how credit score ranges relate to different levels of credit health.
You can find more information on our blog about credit scores, how they are calculated and what they mean. But generally speaking, a score between 300-559 is considered “poor,” while 560-659 is in “fair” territory. Anything above that and you shouldn’t experience any trouble getting a loan. You can find out your credit score for free with Borrowell.
What’s considered sufficient income for a personal loan?
While banks rely heavily on your credit score, some lenders will look at other factors such as your employment and income. If you have sufficient income to pay back the loan, it's easier to get approved for a loan today than it ever was. Every financial institution will have its own requirments, but typically, a minimum income of $1,200 per month before taxes or deductions (i.e. CPP, EI, etc.) is needed to qualify if you have bad credit.
To put your income requirements into perspective, here’s a breakdown:
At least $285 per week (before deductions)
At least $570 every two weeks (before deductions)
At least $1200 per month (before deductions)
If you don't earn the minimum amount required to get approved, there are other ways that you can boost your chances of getting the loan you need.
How to get a $5K loan with bad credit
Today, trusted online lenders leverage e-transfer technology to make loans more accessible than ever! If you need cash in a hurry but have bad credit, here are a few tips to help you get approved without delay:
- 5 Minutes
What you’ll need:
- Proof of Employment
- Bank Statements
- Mobile Phone
Find a lender that can help
If you’re approaching lenders with a bad credit history, find one that specializes in working with clients such as yourself. Know what the lender’s eligibility criteria is before applying because it varies among financial institutions. Credit unions, for example, can be more stringent about who they lend to versus a lender like Fresh Start, that can work with customers of all backgrounds and financial situations.
Show your income
When it comes to fast-tracking ways to get that personal loan, here’s a key phrase to remember: know and show your income. As mentioned, applicants typically need a monthly income of $1,200 to qualify for a $5,000 loan. If you’re not sure about your income, check your bank statements and pay stubs to get an accurate figure. If you’re coming up short, don’t forget to include whatever government income you are receiving. It usually counts towards your monthly income. And you can prove your income by taking photos of any non-sensitive documents with your smartphone and sending them via email. Now that's convenience!
Do you have a cosigner?
If you’re under that $1,200 monthly income threshold (including any government income you receive) then you may need to find a strong cosigner. A cosigner is a trusted friend or family member who agrees to share the responsibility of your loan. The cosigner should have a decent income and a good credit score.
Can you offer collateral?
In some instances, a lender might be willing to accept collateral to secure your loan application. Examples of collateral would be the title of your car or possibly home equity if you have it. This is not advisable and should only be considered in emergency situations. Remember you are putting a valuable asset at risk, and if something goes wrong and your ability to repay the loan is compromised, you could lose that asset.
How does a loan help improve bad credit?
Once you know what your monthly payments are going to be, you should ensure that you're able to make all your payments on time before you sign anything. You might even consider automating your payment so you don't even have to think about it.
As you pay back your loan, your credit can go into positive territory. In fact, you can see it improved in as quickly as 30 days!
Monthly installments on a personal loan of $5,000 can help you build back your credit rating. But it’s key that you make payments on time. Here’s why:
- Payment history proves reliability. Prompt payments on a loan show you’re responsible and not a loan risk. Lenders will look at this behaviour favourably and you will be successful in future loan applications. Important note: payment history makes up 35% of your credit score.
- It pays to use less credit. Another 30% of your credit score comes from what is called credit utilization. This essentially means the less credit you use, the less risky you are as a borrower. If you took a $5,000 loan and used it to pay off a high-interest credit card, it would improve your credit utilization.
Get approved for your personal loan today
Fresh Start Finance helps customers of all credit backgrounds and income levels get approved for a personal loan. Even if you have bad credit, Fresh Start Finance will work with you to get a loan that meets your budget, while helping you rebuild credit. It’s easy, convenient, and FREE to apply.