There are many types of loans available to Canadians seeking financing. Short-term loans to cover the cost of an unforeseen expense to larger, long-term loans; there is an option for everyone. There is more information on how to apply for and obtain a short-term loan for consumers with limited credit, but what about long-term financing? How to apply for and be approved for a loan, what types of lenders offer them, what are the interest rates, and finally, what types of requirements do they have. We will therefore delve more deeply into the subject of long-term loans for consumers with bad credit.
What is a long term loan?
Usually, it takes between 5 and 35 years to repay a long-term loan, depending on the type of loan. In Canada, a loan of less than five years is generally considered a short-term loan and 35 years is the maximum time to repay a long-term loan (for example, a mortgage). This is a fairly general picture of the terms of a loan, you can consider a five-year loan as a long-term loan.
One of the main differences between a short-term loan and a long-term loan is its use. A long-term loan is usually used to cover a planned expense. Something you want or need, for which you have created and planned a budget and for which you know how much you are going to pay for how long. Long-term loans are more often used to buy something expensive, such as a house.
Types of long-term loans
Generally, whether short or long term, loans are divided into two different categories: secured and unsecured.
Secured loans are secured by some form of collateral, which is valuable. It is realistic to say that the two most common types of loans are mortgages and auto loans. With these two types of loans, the item you buy acts as collateral. You can also get a loan and secure it against something you already own, for example, a fully paid car.
When a loan is secured, you are more likely to receive a larger amount of money, although this is not always the case. The guarantee takes part of the financial risk of the lender. If you default on your loan, your lender may seize your collateral to recover some or all of its losses.
An unsecured loan is the opposite of a secured loan because it does not require any form of collateral. With an unsecured loan, you are asking for a loan that will not be secured by an asset. This means that you will be more likely to be approved based solely on your financial situation and / or ability to repay a loan.
Loans for good credit
If you have good credit, there is a good chance that you get approval fairly easily for the loan and credit products you want. It is important to note that this is not 100% of the cases. Sometimes consumers become for various reasons too concerned about getting a high credit rating. They accumulate debts of loans and credit cards in order to reach the perfect rating. But, in reality, too many loans and credit cards will hinder your ability to secure a long-term loan, putting your credit rating in jeopardy.
Loans for bad credit
Not so long ago, having bad credit meant you probably could not find a reputable lender willing to work with you. Now, while bad credit is not advisable, there are several lenders and creditors willing to provide loans and credit products that you desire.
Long term loans without a credit check
Are there long-term loans for consumers with bad credit who want their credit not verified? The answer to this question is yes and no.
Not because almost all long-term loans are large loans and the lender takes a lot more risk than when giving a short-term loan. This increased level of risk means that a lender will want to do everything he can to check the creditworthiness of a potential borrower. This is why you will have trouble finding a lender who can provide you with a long term loan without a credit check.
Yes, because in Canada, there are a few steps that can help you get a long-term loan.
If the long term loan you are interested in is a mortgage, there is a great option called a bridge loan. A bridge loan is a short-term loan solution for low-credit consumers who want to buy a home in the near future.
How does a bridge loan work?
A bridging loan is similar to a bridge, as its name suggests, as it bridges a gap between being rejected and being approved for a long-term loan.
Step 1: Apply for a mortgage with a private lender
This is your first step. Private lenders are more lenient and often do not need credit checks, but if they do, you will be less likely to be rejected because of your poor credit rating. Once you are authorized to obtain a bridge loan from a private lender, you will have to work hard to ensure that each of your payments is made on time. A bridge loan typically lasts between 6 months and 2 years, during which time your payments on time will help you improve your credit so you can move on to the next step.
Step 2: Transfer your mortgage to a secondary lender
Once you are able to improve your credit with your bridge loan, you can refinance it with a secondary lender. You should also be able to qualify for a more affordable interest rate. With this loan, your goal is exactly the same as that of the previous step: make all your payments on time and improve your credit rating so that you can finally be approved for the ultimate long term loan you desire.
Step 3: Access a long-term loan from a bank or primary lender
The last step of a bridge loan is to refinance your mortgage from a secondary lender to a main lender or bank. At this point, you should have improved your credit sufficiently to be able to have it at a lower rate.
Improve your credit and have access to a long-term loan
Credit is the new buzzword of the financial world. No matter what you read in the newspaper or personal finance, you will see at least once mentioned the word credit. Everyone wants to know their credit rating, what information is contained in their credit file to improve it. We strongly encourage that. Being interested in your credit rating means you are ready to take back control of your finances and take steps to create the financial future you deserve.
Check your credit report and credit rating
Today, there are a number of websites that can provide you with your credit rating for free and every Canadian has the right to get a free copy from both credit bureaus, Equifax and TransUnion. Get out of your comfort zone and check your credit, it’s free. No more excuses!
Pay off your debts
If you carry too much debt, not only will your credit rating be negatively affected, but your chances of being approved for a mortgage or long-term loan will also be lower. Create a plan, put a budget in action and do whatever it takes to pay off your debt.
Benefits of a long-term loan
Depending on your needs, some products will benefit you more than others. Generally, long-term loans are provided for a very specific reason, such as to buy a house or a vehicle. They are used for things for which consumers do not have the money available. That said, there are some benefits to getting a long term loan.
Smaller and more affordable payments
When a loan arrives in the longer term, it means that you will repay it over a longer period, so that payments will be smaller. Smaller payments mean you will have more income available to you on a monthly basis. This is, of course, important for people who appreciate having more money available to cover both overhead costs and ensuring they have enough money set aside in an emergency.
Access to more money
Generally, long-term loans are also more important. So, despite the fact that you may want to be debt free quickly, if you want to have more money, you should accept the idea of having a long term loan.
A long-term loan gives you more options to buy what you need. On top of that, it allows you to enjoy things you may not be able to afford without this loan. For example, a house in a dream location or a business opportunity.
Choosing the right lender
For those looking to apply for a loan, our number one tip is to choose a good lender with whom to work. The good lender is different for everyone. So you have to decide what you want from a lender and then settle for nothing less. Be specific, focus and choose someone you trust.