Bad Credit Loans
Bad Credit Loans in Canada
Before you can get a bad credit loan you need to understand what bad credit is. The bad credit loans page starts by offering a brief description of credit bureaus and how they work. After reviewing the basics of credit reporting, Bankrupt Auto Loans break down the two most common types of loans in Canada, Instalment Loans and Revolving Loans.
Once you get an idea of what an instalment loan is and how revolving loans work, Bankrupt Auto Loans defines bad credit and some of the different types of bad credit in Canada.
After detailing the common types of bad credit Canadians can experience, we discuss bad credit loans, bankruptcy auto loans and what they really mean!
Canadian Credit Bureaus
A credit bureau is a type of business that gathers, organizes and reports credit and credit history. Credit bureaus provide credit information to businesses, banks and other financial institutions. Although employers and sometimes law enforcement agencies can access credit files, they are mostly used financial institutes to access consumer credit history and process loan applications.
In Canada there are 2 credit bureaus:
Equifax & TransUnion
Equifax Canada and TransUnion Canada act as credit reporters and maintain all loan payment histories, credit balances and other consumer credit information. When a consumer applies for credit or makes any type of loan transaction, their credit bureau is updated.
The term credit bureau is also used to describe a person or businesses credit file. A credit file (credit bureau) houses detailed credit history, loan amounts, loan payment history, loan securities, collection details and other financial info.
When a business or consumer applies for a loan, auto financing or a mortgage, the creditor bases their loan decision on the information from the credit bureau.
For credit to be considered good or bad, it first has to have a credit rating. The type of loan, payment schedule, country of origin and the current status of the loan are all factors in rating credit.
Canadian Credit Report
If you want to check your credit and get your Canadian credit report visit CheckYourCreditFirst.com – They offer fast and secure access to your full credit report and credit score. You can also protect yourself from identity theft with Canadian credit monitoring.
Types of Credit in Canada
There are several types of credit that can appear on a person’s credit bureau. A loan that reports to a credit bureau is referred to as a trade line. The two basic types of trade lines in Canada are instalment loans and revolving loans.
An instalment loan is a loan with a regular fixed payment. Instalment loans are usually larger than a revolving loan. After each instalment (payment) the loan balance decreases by the amount paid. Once all of the instalments have been made, the loan has been satisfied.
Examples of instalment loans are:
Examples of instalment loan ratings include: I1, I2, I3, I8 and I9. An I1 rating on a credit bureau means the instalment loan is being paid on time, I2 represents a loan that is 30 – 59 days past due and I8 represents a vehicle repossession. You will only see an I8 on an auto loan or other secured loan with an asset than can be seized.
Unlike the instalment loan a revolving loan does not have a fixed regular payment. The payment on a revolving loan revolves around the balance of the loan. Revolving loans are open loans that begin with a credit limit and not a credit balance. Because the limit is unused credit, a revolving loan can never be used or require payments.
Since the payments on a revolving loan vary, the borrower has payment options available to them. In most cases a borrower can choose to pay off their revolving balance entirely or only make the minimum monthly payment. As long as the minimum monthly payment has been made then the loan will never be in default. In Canada the minimum monthly payment can vary but is often only 3% of the balance.
A classic example of a revolving loan is a credit card. A credit card with a $10,000 limit can have a payment as high as $300 a month (3% of the $10,000 balance) or $0 (3% of a $0 balance). A revolving trade line will report to the credit bureau just like an instalment loan, only the rating will be preceded by an R instead of I.
Examples of revolving loan ratings are: R1, R2, R3 and R9. R1 represents an up to date revolving loan, R2 means the loan is at least 30 days past due and R9 means the balance of the loan has been written off by the creditor.
Other examples of revolving loans are:
Personal line of credit, secured credit card, home equity line of credit or merchant credit card, such as Future Shop credit card, Zellers credit card etc.
Bad Credit is a term that contains many degrees of defaulting credit. For a closer look at bad credit in Canada and types of bad credit, we’ve listed and detailed the most common types of bad credit below.
What Constitutes Bad Credit?
When a consumer is given credit they are granted a loan, a loan they are agreeing to pay back. The payment schedule and terms of a loan are agreed upon at the onset of the loan. If the agreed upon terms are not met and the loan is not repaid, then the loan is in default. Credit in default is reported to the credit bureau and often classified as bad credit.
Different Types of Credit Issues
Slow Credit – Slow credit is a term used to describe poor credit that is in default but still being paid. Although the definitions for slow credit can vary, it’s generally considered past due credit. When a loan is 5 or 10 days late, it will NOT report to the credit bureau. However, a loan that is 30 or more days past due will report its slow status. 30 days past due is represented on a credit by either an I2 or and R2, depending on the type of loan.
Slow credit can still qualify for an auto loan. Visit the Get Approved page for more details on getting approved for an after bankruptcy auto loan, bankrupt car loan or slow credit auto loan.
New Credit – New credit can be a burden for anyone trying to take out a loan, especially an auto loan. Most auto loans are granted based on previously credit history. If a person has limited credit (ie. a young person with a 6 month old credit card) they are considered a greater risk than the person with established credit (ie. a consumer with multiple loans and several years of credit history). For someone with new credit to get approved they must often get a co-signor with established credit or agree to a subprime or special finance auto loan.
For tips on how to get financing on a new credit auto loan, visit the Get Approved page at bankruptAutoLoans.com
No Credit – If new can credit can make getting a car loan difficult then it’s not surprising that having no credit can be an even bigger credit challenge. If a consumer has no credit then they may not even have a credit file open with the credit bureau. Without a credit file you don’t exist on any credit or financial systems. This means that a finance institute lending you money or giving you an auto loan is taking a big chance by being the first to lend you money. The significant risk in lending to a consumer with no credit history is the main reason most no credit applications are declined.
If you have never had credit then you are considered a greater credit risk, however there are finance options available and ways to get approved on a no credit auto loan. Bankrupt Auto Loans has plenty of auto finance tips on the Get Approved page.
Repo Credit– Repo credit is not an actual term. It is a way of describing the credit of someone who has had a vehicle repossession in Canada. If a consumer defaults on their auto loan and it leads to a car repo, their credit bureau will report the repossession. If that same consumer applies for another car loan, they will almost always be declined. Thankfully there are alternative ways to get approved for an auto loan with a past repo. Read more on the Get Approved page of Bankrupt Auto Loans.
Bankruptcy Credit – Bankruptcy like other credit statuses reports to consumer credit bureaus. On a credit bureau you will find extensive information about filed and discharged bankruptcies. Bankruptcy information on a credit bureau includes the name of the trustee office where the bankruptcy was filed, the dollar size of the bankruptcy filed, the amount of assets included in bankruptcy as well as the file and discharge date of the bankruptcy.
A past or current bankruptcy can make getting an auto loan difficult. Often a bank will see a previous bankruptcy as a warning sign and decline to approve any auto loans. A current bankruptcy is also a high risk scenario for most banks.
Fortunately bankruptcy and auto loans can still occur at the same time. Special Finance auto lenders in Canada WILL approve bankrupt car loans and after bankruptcy auto loans. The Get Approved page details how to get approved for a bankrupt auto loan.
Getting a Loan with Bad Credit
Bad credit, slow credit or new credit – whatever you want to call it, having bad credit is a reality for many Canadians. The causes of bad credit can be both self inflicted or impossible to avoid. Instead of focusing on why you have bad credit, Bankrupt Auto Loans focuses on helping you understand your bad credit and showing you how to get approved on a bad credit auto loan!
There are several types of bad credit loans. They include secured credit cards, subprime mortgages, high interest bad credit loans, subprime leases and bad credit auto loans.
The word subprime has a negative association to it, especially after the American mortgage crisis became one of the center points of the 2008 Presidential election. Because of this, many institutions are moving away from the word subprime.
Some of the merging terms that are being used in place of subprime are nonprime, below prime, near prime, special finance and alternative finance.
The term subprime is considered negative but the truth is that a subprime loan administered properly can produce positive results. Some examples of a subprime loan having a positive impact are:
A young buyer with limited credit needs a car to get to work. He has new and limited credit, so the regular banks keep declining his auto loans. His credit isn’t bad credit, it’s just new credit.
Another example of a subprime loan helping is when a family that is forced to file bankruptcy for medical reasons, keeps getting turned down for a car loan. Because of a subprime loan, this family can get approved on a bankrupt auto loan and avoid traveling by bus.
It is true that subprime and bad credit loans have been abused by the banking system in the past. It is also important to remember that the subprime mortgage crisis occurred in the US and not Canada. The US has very different banking laws than Canada. Canada has a very strong banking system and has been very careful to ethically grow and support their subprime market without exposing good people and the Canadian economy to increased risk.
Thanks to strong Canadian laws and a high level of banking responsibility Canada has a subprime market that does what it should – help good people with bad credit get approved for loans!
Subprime Auto Loans
In Canada subprime and bad credit auto loans are actually quite common. In Canada there are several companies that specialize in approving subprime auto loans. Many of these companies are subsidiaries of large respected banks and offer a full spectrum of auto loans ranging from prime auto loans, to subprime to bankruptcy auto loans.
The very minimum qualifications for a subprime auto loan require the loan applicant to have a regular source of income. The other criteria for a subprime auto loan in Canada can vary but it generally revolves around affordability and common sense lending.
Getting Approved with Bad Credit
Having a bad credit history or a bankruptcy can make getting an auto loan difficult but getting approved on a bad credit loan is still possible. To find out how to get a bankruptcy auto loan or a bad credit auto loan visit the Get Approved page here at Bankrupt Auto Loans.