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Whether you're new to credit or new to Canada, your income might not always be enough to cover your expenses. Maybe you need to buy a car for a job, furnish a new home, or just borrow enough to cover some emergency.
The big challenge for most people with in this situation is their lack of a credit history. Traditional lenders, such as banks and credit unions, use an applicant’s credit rating to decide whether a loan application is approved or rejected. And in many cases, no credit is just as much of a barrier as poor credit.
However, that doesn’t mean that you can't access fairly-priced loan products with no credit—far from it.
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Loan Options for Canadians Without a Credit History
Times have changed. Banks and credit unions aren’t the only places for loan seekers anymore. Now you can search the internet and find plenty of lenders who cater to those with no credit in a matter of minutes. Leveraging advanced analytics that go beyond credit scores, online lenders can calculate your ability to repay the loan by looking at factors such as your income.
Be careful, though. Before you sign on any digital dotted line, make sure you know the terms of your loan and fully understand the risks. Not all loans (or lenders) are created equal.
Here’s a look at the differences between two common types of loans available to Canadians with no credit history: payday loans vs. personal loans.
1. Payday Loans
Payday loans are a popular—but extremely risky—option for those with no credit or poor credit. Applications are simple and approvals don’t require a credit check. You can get the cash in hand or wired to your bank account within minutes or hours.
However, payday loans are also dangerous and predatory. They have extremely high interest rates and ultra-short repayment deadlines, usually just one or two weeks. With payday loans, it’s easy for your finances to spiral out of control in no time at all.
Fortunately, safer options exist, even for those with no credit. Unless you like playing with fire, payday loans should be avoided at all costs.
2. Personal Loans
Many reputable lenders offer personal loans to those with no credit history. These types of instalment loans offer extended repayment periods, so you can make equal payments over months rather than weeks, as well as more reasonable interest rates than payday loans.
Unlike payday loans, personal instalment loans can help you build credit (provided you don’t miss a payment), making them a great option for anyone with no credit.
Getting approved for a personal loan from a reputable online lender is also quicker and easier than applying for a loan with a traditional lender, such as a bank or credit union. You can apply entirely online in minutes, be approved in a matter of hours, and usually see the cash in your bank account on the same day—all without having to leave home.
No Credit Check Loans
There are some loan companies out there that will give you a loan with no credit check. The thing with that, though, id they don’t report to the credit bureaus, so your credit score won’t improve either. They often have much higher interest rates as well, making it very difficult to transition to lower-interest loans.
The most common type of no-credit-check loan is a payday loan. These loans often have short payback times, and they only offer certain amounts. Once you’ve taken out a payday loan, it can be very difficult to get out of the cycle because the interest rate is so high.
If you have no credit, you don’t have to turn to a no-credit-check loan. You’re better off getting a loan that does check your credit and reports to the credit bureaus.
How to Get Approved for a Personal Loan with No Credit
Getting approved for a personal loan even when you have no credit is relatively simple nowadays. The entire process can be done online at your own convenience.
Total time:
- 3 minutes
What you’ll need:
- Government-issued ID
- Proof of income
- Your smartphone
1. Find the Right Lender
If you’re approaching some of the major banks or credit unions for a loan with no credit history, you might be disappointed because these institutions tend to be more stringent about who they lend to. On the other hand, you might find it easy to get the cash you need from a payday loan operator, but you'll be exposed to extortionate interest rates and unmanageable repayment due dates.
Fortunately—thanks to the rise of financial technology—trusted online lenders are starting to emerge that specialize in fast personal instalment loans and know how to assist Canadians facing all kinds of credit situations. Compare these lenders and find one that offers fair interest rates and terms. And always look out for positive reviews and ratings.
2. Show Your Income
Lenders typically review your credit history to determine how financially responsible you are. However, if you don’t have any credit history, some lenders will examine other factors to decide whether to approve your loan application or not. Documents like your bank statements and pay stubs can be helpful for lenders to confirm your income. If you receive any supplementary income assistance from the government, let your lender know as it can help your chances of approval.
As part of your loan application with Spring, you’ll be asked to show your income. Generally, a monthly income of at least $1200 can get you approved. To put your income requirements into perspective, here’s a breakdown:
|
Weekly Income: |
At least $285 per week (before deductions) |
|
Bi-weekly Income: |
At least $570 every two weeks (before deductions) |
|
Monthly Income: |
At least $1200 per month (before deductions) |
3. Add a co-signer
Adding a co-signer to your loan agreement is optional, but if you’re below the lender's income threshold it might be the only way to get approved for the amount you’re seeking. Asking a friend or close family member with good credit to be your co-signer will make lenders feel more confident about lending money to you. The co-signer should be someone you trust who is willing to help. In turn, it’s important to know that any missed payments will not only impact your credit, but theirs as well.
4. Start monitoring your credit
Getting approved for the right loan product(s) (personal instalment loan, credit card, auto loan, mortgage, etc.) is going to help you build your credit score as long as you make your payments in full and on time. There are free services and apps that let you monitor your credit score online and ensure you stay in good financial health. Visit Borrowell to check and download your credit report for free.
