Do you need to borrow money rather suddenly; even urgently? If you have a “bad credit” rating, you might be wondering about your best options to apply for a loan? Some lenders promise instant money. Can this realistically solve your problem, or is this is an expensive sales tactic?
If you have credit that has been dinged by missed payments and/or too much debt, we’ve got some important answers and tips to help you navigate around the varying loan types, particularly unsecured loans. We’ll show you how you can solve your current cash flow crunch despite bad credit, and maybe even turn it into good credit!
Let’s start with the important differences between the two main categories of loans; secured and unsecured loans.
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Secured vs unsecured loans
Secured Loans require you to provide something of value that the lender would keep, in case you don’t repay the loan. This item (known as collateral) protects the lender as they know they can recover any losses, by keeping your collateral. With collateral, the lender will likely offer lower interest rates.
The process of secured loan approval usually takes a longer time, as the lender needs to assess the real value of your collateral, and your ability to pay (by checking into your credit rating).
Unsecured Loans are offered without requiring the ‘collateral’ kind of financial protection to the lender. With unsecured personal loans, the lender will try to find other ways to protect themselves financially. They try to compensate for the lack of collateral in various ways, and you’ll need to carefully consider which ones are worth it, and which ones are too costly.
Unsecured loan lenders may charge you more fees, higher interest rates, and late payment penalties to mitigate or reduce their financial risk. This is also why they willing to consider borrowers with a lower credit rating.
Be clear on which of these other elements a lender uses before completing an application. Here at Fresh Start Finance, we make everything clear and will work with you, to bring about long term improvements in your financial profile.
Since the unsecured loan lender doesn’t need you to sign over collateral, the application process for an unsecured personal loan is easier and has a much faster approval time compared to a secured loan. There are many reasons why an unsecured loan may be the best loan for you.
Different types of unsecured loans
There are several unsecured loan types, including credit cards, payday loans, student loans, lines of credit, and personal instalment loans.
For those people seeking unsecured loans for bad credit urgently, two of the most popular types of loan are:
- Installment loans
- Payday loans
While both enjoy unsecured status, there are painfully expensive differences between the two.
The difference between a payday loan and an installment loan
Payday loan providers boast instant loans, leading you to believe that theirs is a much quicker process than with other loans. There may be a small difference in approval time from an installment loan, but it is usually less than a day’s difference. Those few hours will cost you a lot more.
A payday loan lender will charge you a very high rate of interest for a very short term loan.
On most payday loans, the annual interest rate would total well over 500% annually!
Installment loan rates are far lower.
Payday loans also require full repayment in a very short turnaround time; usually (but not always) until your next payday. Payday loans have no repayment options beyond that unless it includes heavy penalty fees.
If your monthly budget is tight, a payday loan is going to make your cash flow even tighter. This could easily lead you into a revolving door of needing to borrow more, to pay off the excessive amount of interest costs with a payday loan. Both your short term cash flow and long term financial profile will decline in such a cycle. This is why payday loans are often referred to as predatory loans. They take advantage of your urgent monetary needs and at a very high cost to you.
Installment loans, by contrast, are much lower in interest. Responsible online lenders like Fresh Start Finance will consider your monthly budget and your long term financial goals. We’ll help you establish your monthly payment and the length of your loan so that you can successfully pay your loan and maintain a healthier monthly cash flow. This is why personal instalment loans are so much better than payday loans.
What is a bad credit loan?
A ‘bad credit loan’ is a label used by some lenders, for people who have probably already been denied a loan, or expect to be denied, due to a bad credit rating. These lenders know such potential customers are in an urgent situation. They know that if fewer lenders are likely to approve your application as a result of your current credit rating problems, you are more likely to accept terms that are not in your financial best interest, only theirs.
Some “bad credit” lenders entice potential customers with bad credit by advertising as such, or promising “no credit check,” “no employment verification,” or even “bad credit loans guaranteed approval,” all of which makes it sound as though they offer something unusual. Take care to read the fine print to understand what the real costs will be. While most extra costs are there to better protect the lender, some of them have many more fees than others, even if you’re paying on time, while others will only do so if you stop paying them on time.
Instant loans: what’s the catch?
A secured loan (with collateral or a cosigner) usually involves more paperwork, so it can take longer. If you can’t wait, getting an instant unsecured loan is possible, but this type of loan means greater risk for the lender. The lender compensates for this risk with higher interest rates and fees. If you’re intent on pursuing an unsecured loan, there are lenders that can help you, but you should to be selective about who you do business with.
We live in an age where people are becoming increasingly comfortable managing money online. The rise of digitalization has paved the way for online lending institutions to compete with the big banks for your business. Unfortunately, some online lenders will try to take advantage of a bad credit customer’s situation. When shopping around for a fast loan online, you should always look out for the warning signs of a predatory lender and be careful about what you sign up for.
How to improve your credit with a fast unsecured loan
When you owe money to a lender, your payment history can be sent to one or both of the credit bureaus here in Canada: Equifax and TransUnion. If you currently have expenses or debts repayments that are overwhelming your monthly budget, you could be at risk of being late with monthly payments, and this can damage your credit rating. Unfortunately, poor credit history can make it harder to secure a lower interest rate on loans in the future.
If your rating is already dinged, your financial situation will worsen down the road because lenders tend to increase interest rates as a person’s credit rating goes down. Do all you can to prevent missing payments. It might mean consolidating your debts by replacing some high-interest loans with a lower interest loan. An installment loan can help you achieve that. Then, with the addition of on-time installment loan payments, your credit rating will go up. The important takeaway here is the importance of rebuilding your credit rating.
Looking for an unsecured loan with bad credit?
Fresh Start Finance is open 24/7 and can deliver money straight to your bank account in a matter of hours, not days.
It's no wonder more and more Canadians are choosing Fresh Start Finance. We offer:
- Fast cash: Thanks to advanced technology, we can deposit funds within 24 hours of applying. Get money on the same day you apply with e-transfer, or 1-2 business days with EFT (Electronic Fund Transfer).
- Installment loans of up to $15,000: From covering unexpected expenses to funding your dream wedding, a personal installment loan can be used any way you like.
- Built-in convenience: With Fresh Start Finance, everything is done online and over the phone, so you can apply, get approved, and receive a substantial amount of money from the comfort of your home!
- Any credit accepted: You can get approved even if you have bad credit, are new to credit, or have filed for bankruptcy. Whatever your credit situation, Fresh Start Finance can help you.
- Flexible payment plans: Select a longer term to make lower monthly payments or a shorter one if you want to pay your loan back as quickly as possible.
- Trusted reputation: Fresh Start Finance is trusted by Canadians across the country. See what they have to say on Trustpilot and Feefo.
- No hidden fees: You’ll never pay a dime in application fees, maintenance charges, and other hidden costs.