Some prospective borrowers may be looking for the so-called ‘guaranteed approval loans for poor credit’ for personal reasons. For some, these types of loans may be needed because the borrower has a low credit score based on flawed credit history. The premise of ‘guaranteed approval’ raises the hopes of many borrowers that they’ll be granted a quick loan right away.
Is this realistic? Are there really lenders who give such favorable loans to the public? Keep reading to find out more about whether guaranteed approval loans for poor credit are actually offered and what you’ll need in order to avail for one.
How To Find A Guaranteed Approval Loan For Poor Credit
It’s crucial to know from the start that there’s no such thing as a ‘guaranteed approval for poor credit’ loan. This is because all loan applications in Canada have to be assessed first by the lender before they’re approved. Yes, you may be able to find a lender willing to offer loans for those with poor credit, but they are technically not ‘guaranteed approval’ loans either. Lenders will still have to look for borrowers who fit certain criteria, such as:
- Character: Your credit history should reveal this by displaying a pattern of continuous payments for loans right before or on their due dates. This means you can be trusted to repay loans. This will be a big factor in measuring your ‘creditworthiness’.
- Capacity To Pay: Your debt-to-income ratio measures this. So, you can expect the lender to inquire if you’re employed and how much your income is at the time. The lender will always want to know how you can repay the loan they extend.
- Capital: This measures the amount of cash that you have at the moment.
- Collateral: This takes into account the number of valuable assets you have that may be offered as security for the loan.
- Conditions: Here, you’ll have to explain to the lender why you’re applying for a loan and the amount you want to borrow. The interest rate that the lender will agree to offer you will also fit under this category. Plus, you need to explain to the lender how you’ll manage to repay the loan under the current circumstances.
Anyone who has poor credit will probably get tripped up by either the character criterion or the capacity to pay criterion. So, this makes it hard for people who need a loan but are lacking in those two criteria.
However, if someone offers you a ‘guaranteed approval’ loan and the ad says they accept applicants with poor credit, then you should be more cautious since that may be a scam. Make sure to do your part in researching before availing for any type of loans. You have to be certain that not only is the lender legit, but you will also be able to comply with every stipulation.
Now that you realize that guaranteed approval loans for poor credit don’t really exist, you can try to qualify for loans offered to those with a poor credit score.
How To Find Lenders For Poor Credit Borrowers
If you’re committed to looking for poor credit loans, it pays to be prepared first with certain documents that lenders look for. Some of these are:
- Your FICO Score: This is sometimes better known as your ‘credit rating’, issued by the Fair Isaac Corporation. The FICO score encompasses criteria for determining creditworthiness such as kinds of credit applied for or being used now, history of applying for loans, degree of indebtedness, history of making loan payments, and any recent loans you’ve applied for. This may be used in tandem with your credit report by the lender. A FICO of at least 650 is considered a healthy sign while a FICO of 620 and below may raise red flags in the minds of lenders. In Canada, you cannot get your FICO score unless you’re already applying for a loan. If so, the lender can help you run a “hard” credit check to see your FICO score.
- Your Credit Report: This is available from the credit bureaus of Canada, namely, TransUnion Canada and Equifax Canada. Your credit report is the basis of your credit score, so you have to pay attention to this one closely because lenders will examine it too. You can get your credit report at least once a year from the two credit bureaus. Many of the criteria used to determine your FICO score are also applied to your credit report, especially the debt payment history.
- Debt-to-Income Ratio: This is also reflected in your credit report. It’s a comparison between the debts you were or have been paying every month and the amount of income you’re presently earning. The rule is, the lower your debt-to-income ratio is, the more trustworthy you may seem to be since you’re not burdened by too much debt.
- Proof Of Employment: Naturally, you’ll need to repay any loan on time, even if you’re a poor credit borrower. So, you must have sufficient income to be granted a loan. If you don’t have employment, the lender will ask if you’re a small business owner since that can help you get a small business loan. To qualify for a small business loan, you still have to submit the same documents mentioned above.
If you’ve prepared those documents in advance, you’ll be ready to talk to a potential lender about applying for a loan.
Other Factors Lenders May Look For Among Poor Credit Applicants
Although you’d usually expect lenders to be fair and unbiased in the application processing phase, the fact remains that they do assess some other factors that might not be directly recorded in the documents cited above. These other factors can be the following:
- Age Of Applicant: If you’re at least over 30 years of age but not past age 50, you may find that some lenders find that a good sign of creditworthiness. That’s because people in this age group may lead more stable lives, as opposed to those aged below 30 or over 50. They’re also more likely to have a regular source of income still.
- Occupation + Work Experience: Lenders are very interested in the career of borrowers since some jobs may be perceived as more desirable than others. For example, government employees and doctors get a standing ovation from lenders because their jobs are relatively stable compared to private sector occupations. Businessmen in top companies, accountants, engineers, and lawyers are highly esteemed as well.
As you can see, these jobs are valued not just due to the income of each professional but also because of the stability of each occupation. It means professionals like these will most likely repay loans regularly and in full. If you have a history of jumping from job to job in mid-stream, that tells lenders that you might have difficulty remaining long enough in a position to repay any loans.
- Income Level Of Applicant’s Spouse: This is a significant factor that lenders want to clarify with the applicant, because the spouse of the applicant may have to serve as a co-applicant in the loan. This means that if the applicant suddenly loses his job, the lender will require the spouse to help repay the loan. It’s a good sign if the spouse has around the same income level as the applicant since that makes it easier for the lender to assess their ability to repay all debts.
- Any Sources Of Surplus Income: Generally, lenders applaud applicants who maintain additional sources of income since these may help the applicant to repay loans right on time. However, the lenders might also want to know why the applicant is trying to borrow more money, if there’s surplus income coming in.
- Reason For Seeking A Loan: Lenders prefer an applicant who has a good reason for applying for a loan. If, for instance, the applicant needs a loan because they’ll be setting up a small business, then that’s a positive for the lenders because they make money in the process. But if the applicant is seeking to apply because he might lose his job soon, then that might not fit in with the ideal borrower profile that lenders look for.
Although the lender is expected to stay professional in all dealings with borrowers, you may still find yourself being asked questions like: How did you become a poor credit borrower? With this in mind, you should be ready to answer this, in case it ever comes up. Generally, lenders will appreciate an honest answer since that may help them determine how to deal with your application. It’s also best if you apply to one lender at a time to avoid getting hits on your credit report. Filing for multiple loans all at the same time will not reflect well on your credit history, either. Just apply for the amount that you need at the moment and then wait and see if the lender approves the loan. This is a great thing to keep in mind when it comes to rebuilding your credit history so that it becomes easier to apply for better loans at better rates in the future.