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In Canada People with Bad Credit May Have Better Options than Getting a Costly Personal Loan

Alternatives to personal loans for people with bad credit in Canada.If you live in Canada and you’ve been turned down for a loan by your bank or credit union because you are one of the people whose credit doesn’t meet their requirements and you are now looking for a bad credit personal loan, you may actually have other options that can solve your debt problems, re-establish your credit, and get your finances back on track.

The first thing you need to ask yourself is “Why.” Why do you need this loan? What’s driving you to get one? Click on your reason below, and see if there are better options for you:

  1. This is for an emergency. Your car broke down, you have a big dentist bill, your dog is sick, you need to travel to visit a sick relative, or something else along these lines.
  2. You are trying to rebuild your credit or improve your credit score.
  3. You would like to have just one loan with one payment. You’re trying to get a more affordable payment by paying off your debt over a longer period of time, or your existing interest rates are too high.

1. Need Money for an Emergency

If you truly have an emergency and need some money right now because you haven’t been able to save up any money for emergencies, then you may need to continue your search and find a company who can loan you the money. Personal loans when you have bad credit can have an interest rate of around 47%. If your credit isn’t too bad, you may be able to do better than this.

One of the first things you’ll want to do, though, is get a copy of your credit report. You’ll need to know what you’re dealing with and how bad your situation is so that no one takes advantage of you by charging an excessively high interest rate claiming your credit is worse than it really is.​ Click here to find out how to get a free copy of your credit report, and click here to find out how to get your credit score. However, don’t worry so much about your credit score. Lenders will use whatever number it is according to their system, and each lender’s system is different.

You also may be able to improve your credit if you are able to implement any of these suggestionsWhen you look at your credit reports (make sure you get both: one from Equifax and one from TransUnion), make sure your debt balances are correct.

While you’re waiting for your credit report to arrive in the mail, take a look at where you’re spending your money. Decide if you can cut some expenses out, even temporarily, to come up with the money you need, e.g. put your internet on hold and use free wifi hotspots for a month; scale your cell phone plan down to the bare bones for a few months; watch your bank account carefully and avoid high fees or NSF charges. Look around and see if there’s something you can sell to generate a lump sum of money.​

Getting a high interest bad credit loan, even for an emergency, can make your situation worse in the long run. Once you’ve looked around for a loan, if you can’t find anyone other than a payday loan company to lend you any money, give a non-profit credit counselling organization a call. They should be able to help you find a better option.

2. Trying to Rebuild or Improve Your Credit Rating or Score

Someone may have told you to apply for a personal loan to improve your credit score. While a loan may help in the long term, at this point it’s not about saving your credit anymore. Right now it’s about rebuilding your credit. To do this, your best first step would be to contact a non-profit Credit Counsellor in your area.

A Credit Counsellor will sit down with you (either in person or over the phone – it’s your choice), go over your complete financial picture, answer some of your credit related questions, and help you put together an action plan to re-establish your credit. You'll know which steps to take so that you can reach your financial goals. Meeting with a non-profit Credit Counsellor is usually free and always completely confidential. You can also take steps to improve your credit by following the suggestions in our How to Fix Your Credit guide.

3. Need One Affordable Monthly Payment

Before we go further, there are some more questions you need to honestly ask yourself. Is a loan truly the best thing for your situation? Is it really what you need, and will it actually help? Are you dealing with your situation, or are you just extending the pain? Is it possible that a loan will only be a short term solution to a longer term problem that’s been brewing? Have you considered the possibility that a bad credit loan could increase your cost of living, put you further behind the eight ball with high interest payments you can barely afford, and hurt you?

Don’t rush into anything that may end up hurting you and possibly causing more harm than good. Know your options. Get advice from someone who is knowledgeable about how to overcome bad credit – someone who doesn’t have an interest in selling you a loan.

What you need to do is address the underlying problem that’s causing financial issues. Find the cure. Don’t just prolong the pain.

Your first step should be to see a local non-profit Credit Counsellor. They will review your entire financial situation with you, help you create a budget, and help you figure out what your best options are to get your finances back on track. When it comes to working through situations like this, one size doesn’t fit all. Everyone’s situation is unique. That’s why it’s so valuable to sit down with an expert and go over your situation to see what all your options are.

A Little Known Alternative to Getting an Unsecured Personal Loan for People with Bad Credit

While there are many ways to help people with bad credit address and resolve their situation, one good option that many Canadians don’t know about is a Debt Management Program.

If you choose to go onto a Debt Management Program, a credit counselling agency contacts your creditors and arranges for all your unsecured debts to be put on the repayment plan (it’s not a personal consolidation loan, but it effectively accomplishes the same thing). All your payments are then consolidated into one affordable monthly payment, and interest rates are either eliminated or drastically reduced. If you also have secured debts, the Credit Counsellor will build payments for those debts into the program so that you can afford to make them every month.

The average program lasts 2.5 years (the maximum length is 5 years), and the credit counselling agency can work with you to rebuild your credit once you’ve finished the program. Some credit counselling organizations even have a credit rebuilding program available in the back end of the repayment program that you can choose to take advantage of if you wish to.

What to Do if You’re Really Struggling with Debt in Canada

If you’re really struggling with your personal debt and need help, don’t extend the pain with a bad credit loan. Contact an accredited Canadian non-profit credit counselling organization today and get some help to get your finances back on track. The really good thing is that non-profit Credit Counsellors usually help people for free, and their help is completely confidential and typically non-judgmental. You have nothing to lose by talking to one. They are simply there to help.