Best Installment Loans For Bad Credit In Canada For April 2024

We reviewed 82 popular lenders based on 17 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the 10 best lenders based on the weighting assigned to each category:

• Loan details: 20%
• Loan cost: 25%
• Eligibility and accessibility: 30%
• Customer experience: 15%
• Application process: 10%

Within each major category, we also considered several characteristics that would benefit those with bad credit in particular, including awarding an extra five points for lenders offering a low maximum APR, a low minimum credit score, a high maximum loan term and cosigner/borrower capability. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like prequalification options and mobile apps.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

Installment loans for bad credit are financial solutions tailored to individuals whose credit histories are not in the ideal range, typically falling below 600.

These loans offer a structured repayment plan, making them a practical option for borrowers who might struggle to secure traditional financing due to a low credit score or an insufficient credit history.

Given the heightened risk associated with lending to individuals with poor credit, these loans often carry higher interest rates, have more modest loan amounts and feature shorter repayment periods compared to standard loans.

Canadian lenders who specialize in bad credit installment loans usually offer more flexible qualification criteria. They might consider alternative credit data or other aspects of a borrower’s financial profile, such as income stability and debt-to-income ratio. Some lenders allow applications with a co-signer, which can help secure better terms. Additionally, secured installment loans, which require collateral, are often available with more lenient credit requirements due to the reduced risk they pose to lenders. These diverse lending options aim to bridge the gap for individuals who might otherwise struggle to access necessary funds due to their credit situation.

The process begins with an application, where you provide relevant financial information. After submitting your application, you enter a phase of assessment and verification, where the lender evaluates your creditworthiness.

Upon approval, the loan amount is directly deposited into your bank account as a single lump sum. From there, interest begins accruing right away. Borrowers are required to make regular, usually monthly, payments over the course of the loan term. This term can vary, often ranging from one to several years, depending on the lender’s policy and the loan agreement.

Installment loans for bad credit bring a multitude of advantages for individuals working towards financial stability and credit improvement. Key benefits include:

• Easier access to credit. One of the primary advantages of these loans is their availability to individuals with bad or unestablished credit histories, who conventional banks may not lend to.
• Predictable repayment structure. These loans come with fixed monthly payments, removing the uncertainty and variability that often accompany other types of credit.
• Debt consolidation. Installment loans can be strategically used to consolidate higher-interest debts, such as credit card balances, into one manageable monthly payment.
• Versatility. The funds from these loans can be used for a wide range of personal expenses, from home repairs to medical bills, offering a flexibility that is highly beneficial for borrowers needing immediate financial relief.
• Swift approval and disbursement. Many Canadian lenders operating in this space boast quick approval and funding times.
• Varied loan amounts and terms. These loans come with a range of amounts and repayment options, catering to different financial needs and repayment capabilities.
• Simplified online application process. The ease and convenience of online applications streamline the borrowing process.
• Potential for credit improvement. Regular, on-time payments of installment loans can positively impact your credit score, helping those looking to improve their credit profiles.

If your credit score falls into the lower ranges, typically below 650, and you need a loan and/or are looking to improve your credit history, you might consider an installment loan. These loans offer a structured repayment plan that can assist in budgeting and financial planning, so having a consistent income and budget is key. Regular, timely payments on an installment loan can contribute positively to rebuilding your credit score over time.

That said, it’s crucial to ensure that your monthly income can cover the loan repayments, which will include both the principal and interest. This is where tools like online loan calculators that can help you estimate your monthly payments.

An installment loan for bad credit can be a tool for consolidating debt, rebuilding your credit and funding whatever you need the loan for, as long as you are able to make your payments on time.

With a variety of lenders in the Canadian market, here’s how you can make an informed decision about which loan to take choose:

1. 1. Assess eligibility requirements: Begin by examining the minimum criteria set by lenders. Many have specific credit score thresholds, but some are more accommodating towards borrowers with lower scores or limited credit histories. Target lenders whose requirements align with your credit profile.
2. 2. Examine interest rates: Interest rates for bad credit loans tend to be higher, but they can vary significantly between lenders. It’s essential to compare the Annual Percentage Rates (APRs) offered to understand how much the loan will cost you over time. Look for the most competitive rates available for your credit score.
3. 3. Explore prequalification options: Many lenders offer online prequalification that allows you to see potential loan terms without impacting your credit score. Utilize this feature to compare offers from multiple lenders to find the most favorable terms.
4. 4. Understand fees and additional costs: Beyond the APR, scrutinize lenders for additional charges like origination fees, prepayment penalties or late payment fees. These can significantly affect the total cost of your loan.
5. 5. Calculate monthly payments: Use an online loan calculator to estimate your monthly payments for each loan offer. This step helps in comparing different loan terms and ensures that the repayments fit comfortably within your budget.
6. 6. Read reviews and customer feedback: Investigate the lender’s reputation by reading reviews from previous and current borrowers. Platforms such as the Better Business Bureau (BBB) and Trustpilot offer insights into the lender’s customer service quality, transparency and reliability.
7. 7. Consider loan terms: Reflect on the loan term, as a longer term might mean lower monthly payments but more interest over time. Conversely, a shorter term increases monthly payments but decreases the total interest paid.
8. 8. Personalized service: Finally, consider whether the lender offers personalized service. Some lenders provide more personalized assistance, guiding you through the loan process and offering advice on improving your credit.

Remember, the best loan is not just about immediate financial relief but also about improving your financial situation in the long run.

Securing an installment loan with bad credit, while challenging, is not impossible. Here’s how to go about the process:

1. 1. Review your credit report: Start by obtaining a copy of your credit report from credit bureaus like Equifax and TransUnion. Ensure there are no errors or inaccuracies that could be negatively affecting your score. Rectifying them can sometimes improve your credit standing.
2. 2. Assess your financial capacity: Before applying, it’s crucial to understand what you can afford. Calculate your monthly income and expenses to determine a realistic loan payment that fits within your budget. Tools like online loan calculators can be instrumental in this assessment.
3. 3. Explore lender options: Investigate various lenders who cater to individuals with bad credit. This includes online lenders, credit unions and specialized financial institutions. Many of them allow you to prequalify, providing an idea of the terms you might receive without impacting your credit score*.
4. 4. Select the right lender: Compare the offers based on APR (which encompasses both interest rates and fees), loan terms and additional features such as customer support and funding speed. Choose a lender that offers the most favourable and manageable terms for your situation.
5. 5. Complete the application process: Once you’ve selected a lender, complete the application process by providing all necessary documentation. Stay in communication with the lender in case they require additional information or clarification.
6. 6. Manage loan repayments: After receiving the loan, it’s vital to manage repayments effectively. Setting up automatic payments can be a wise choice to ensure on-time payments, which are crucial for improving your credit score.

* Regarding the impact on your credit score, installment loans are reported to Canadian credit bureaus. Regular, timely payments can positively influence your credit history, which is significant considering that payment history is a major factor in credit scoring models. Conversely, missed or late payments can harm your credit score. Alongside payment history, having an installment loan diversifies your credit mix, which can also positively affect your credit score over time.

Related: 5 Personal Loan Requirements To Know Before Applying

Bad credit installment loans can have a significant impact on your credit score, offering the opportunity to both access funds and potentially improve your credit score. When you take out this type of loan and make consistent, on-time payments, you positively impact your credit score. This is because payment history is a crucial component of your credit score, heavily influencing its calculation.

Regular payments on an installment loan are reported to major Canadian credit bureaus like Equifax and TransUnion. Each timely payment is a positive mark on your credit report, gradually improving your credit score over time. This aspect is particularly important if your credit history has been marred by late payments or defaults in the past.

Moreover, an installment loan diversifies your credit mix. In the world of credit scoring, having a variety of credit types—such as revolving credit (like credit cards) and installment loans— can reflect positively on your creditworthiness. This diversity shows potential lenders that you can manage different types of credit responsibly.

In addition to diversifying your credit mix, an installment loan also helps in building a more robust credit history. Particularly for anybody with a thin credit file, adding an installment loan can extend your credit history, which is another factor credit bureaus consider.

However, missed and late payments or defaulting on an installment loan, can have the opposite effect, significantly hurting your credit score. To mitigate this risk, many lenders offer automated payment options, ensuring that payments are made regularly and on time.

When exploring financial solutions, particularly if you have a poor credit score, it’s wise to consider alternatives to traditional installment loans. Two noteworthy options are credit union alternative loans, which are similar to Payday Alternative Loans (PALs), and Crowdfunding.

• Payday loans: As alternatives to bad credit installment loans, payday loans offer immediate cash for short-term needs, often without a credit check. However, they come with significantly higher interest rates and shorter repayment terms. These loans are regulated differently across provinces and territories and should be considered carefully due to the potential for high costs and the risk of debt cycles. Payday loans are often used as a last resort for urgent financial situations where other borrowing options are not available.
• Credit Union alternative loans: In Canada, many credit unions offer loan products that are comparable to Payday Alternative Loans (PALs) in the U.S. These are typically available at lower interest rates than standard payday loans and are designed to be more accessible to borrowers with poor credit. To qualify, you generally need to be a member of the credit union for a certain period. These loans usually range from a few hundred to a few thousand dollars, with repayment terms extending from a few months to a year. The interest rates are often significantly lower than those of payday loans, and because they’re offered by credit unions, the focus is more on financial wellbeing and less on profit.
• Peer-to-peer lending: For Canadians seeking a non-traditional approach to funding personal needs, peer-to-peer lending websites connect borrowers to individual investors directly. Similar to crowdfunding, investors can give money directly to borrowers without needing to go through a bank or other financial institution. The peer-to-peer lending website itself, usually sets the terms for borrowing, including the interest rates and amount of loan available, based on the credit worthiness of the borrower. There are usual multiple options available for all kinds of financial situations and amounts. Plus, lenders can usually choose the risk profile of the borrowers they would like to invest in. Some peer-to-peer lending sites only lend to specific groups, such as small business owners.

All of these alternatives provide unique advantages over traditional bad credit installment loans. Credit Union Alternative Loans offer a more affordable and structured borrowing method, while peer-to-peer lending presents a more direct, personal and perhaps faster way to raise funds. Each option requires you to carefully consider your circumstances and needs but offers a creative solution to financial challenges, especially for anybody working to improve their credit scores.