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Is a Bad Credit Loan for You?

Loans have many faces. Only someone who has ventured into the mysterious world of loans would know what we’re talking about. On our platform, we’ve been trying to explore the payday loans industry a bit. And the flow has brought us to today’s topic. Bad credit loans.

If definitions are something to go by, a payday loan is also a kind of bad credit loan. But in general, they’re considered separate but have overlapping characteristics. On this page, we’ll learn what a bad credit loan is, who qualifies for it, and what happens if you can’t pay it back!

What is a Bad Credit Loan?

The term is pretty self-explanatory, we believe. These loans are particularly targeted at individuals in Canada who don’t have good credit. Just like in the US, your credit score is the most crucial aspect of your finances. You need a good score to secure personal loans, home loans, good mortgage rates, and whatnot.

When you go through traditional channels such as banks or credit lines, you need to submit a lot of paperwork to prove that you have a good credit score. Plenty of applications get denied regularly simply because the applicants don’t qualify for the minimum credit score.

That’s where bad credit loans come in. Sure, you’re paying higher interest rates and additional fees than perhaps any other channel. But you still have a place to turn to when you’re in dire need of some financial help.

Credit issues usually arise when you fail to pay previous loans in time, pay your credit card bills late, have a bankruptcy, and have high credit utilisations. All of these practices will reflect in your overall credit score. It means the lender of a bad credit loan knows the risks of crediting you the money. Thankfully, the terms for these loans are designed in a way that even struggling people should be able to pay them back in time.

The most common forms of bad credit loans are payday loans and installment loans. We’ve already covered what you need to qualify for a payday loan. If you’re interested in installment loans, you can check out our guide on them.

To sum up, a bad credit loan is an amount of money offered to individuals with a certain credit score. Bad credit loans generally have higher interest rates than traditional loans. However, if well managed, they can help people improve their credit scores and meet their financial goals.

What to Consider for a Bad Credit Loan?

Whenever you think of taking out a loan even from a friend, you should consider certain things. The same goes for bad credit loans, with even more intensity. Let’s take a look at the criteria you must keep in mind when applying for a bad credit loan in Canada.

High Interest Rates

Where there is a loan, there is an interest on it. Otherwise, what’s the lender’s benefit for giving you the money? If you’ve read our payday loan eligibility guide, you may already know about APR (Annual Percentage Rate). In comparison, the rates are more or less the same for bad credit loans.

You can expect to pay upwards of 400% of the loan amount every year unless you pay it back in time.

A great way to minimise the possibility of paying more than the loan amount in interest is to pay more than the minimum due every month. That way, you can chip away on the total loan without paying too much in interest.

However, you must be careful of the “payment penalty”. It’s an additional fee if you’re planning to fast track the loan repayment. In simple words, the loan providers don’t want to you to pay off the debt too fast.


Unfortunately, interest is not the only thing you pay for when you take out a bad credit loan. You may end up paying a lot in fees if you’re not aware of the terms beforehand. Let’s take a quick look at some of the most common areas where you may end up paying fees.

  • Processing/Origination Fee: This is a one-time payment that you pay the lender for processing your request. You can either pay it upfront or adjust it with the loan when it gets credited into your account.
  • Late Fees: These are pretty common no matter what financial organisation you’re dealing with. If you’re late for a payment, you have to make it up by paying more.
  • Insufficient Funds: If you set auto-debit to your account to repay the loan installments, you need to ensure that your account is sufficiently funded. If a payment fails, it may incur additional fees.
  • Payment Penalty: We’ve already hinted at this. If you pay more than the minimum due amount, some lenders can charge you extra.

To minimise these fees when you take out a bad credit loan in Canada is relatively easy. The practice starts with reading all the terms and conditions very carefully before you apply. If you have a glimpse of doubt that you may have difficulties paying back the loan, it’s better to avoid it altogether.

Loan Tenure

For most borrowers, the tenure of the loan plays a major role. Even with 400% APR, a long-term loan can look affordable on paper. Make sure you don’t fall for this false pretense because you’ll end up paying way more just in interest.

Bad credit loans, in general, have shorter repayment tenures than most other types. The average tenure is going to vary from province to province and lender to lender.

Why Should You Take a Bad Credit Loan?

One of the main reasons we take out loans is to achieve a goal. Personal loans such as payday loans or bad credit loans, it’s mostly to take care of urgent yet unexpected expenses. An emergency room, for example.

Along with being a shelter on a rainy day, bad credit loans can help you set your credit score right. If you have a bad score, all you have to do is keep paying back the loan on time. Also, if you have no history of credit scores whatsoever, a personal loan can help you set you on the right track!


From what we can tell, a bad credit loan is one of the cheapest ways to achieve a goal or to pay off urgent expenses, although the rates and fees are higher than most loans. It’s simply because, with bad credit, no financial organisations will be willing to give you a loan.

Just map out your budget before you take out a bad credit loan. Also, make sure you discuss everything with the representative before you give the go-ahead.