Best low-income loans in Canada
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A low-income loan is a loan designed specifically for borrowers with low income. Whether you’re considered low income by lenders depends on your household income, the size of your family and where you live.
It can be challenging to qualify for a loan when you have a low income. Lenders want you to be able to prove that you can afford to make the payments, however, this can prove difficult. You may feel like you have no choice but to go for loans with high fees and high interest rates.
With a low-income loan, you may be able to qualify for the financing you need at a more reasonable rate. Some lenders may be willing to look at your income less strictly. Instead of relying on the income you filed on your tax return, a lender may be willing to estimate income for you based on your last six months’ bank statements.
The drawback to this type of loan is that you may have to pledge your own personal assets as security. This may not be so bad because you may be able to obtain the financing you need at a lower interest rate. Still, it’s important to recognize that you’re putting your own personal assets at risk.
Where can I find a loan with low income?
Fairstone
Quick Facts
Terms: 6 to 120 months
Loan amount: $500 to $50,000
Rates: 19.99%-39.99%
Minimum income: N/A
Fairstone is ideal for you if you have fair to good credit. You’ll be able to get the money you need quickly and you can work one-on-one with a Fairstone Lending Specialist to figure out a personalized repayment plan that works for you.
With Fairstone, you have the option of either a secured and unsecured loan. If you’re a homeowner with low income, you could use the existing equity in your home as security to take out a secured loan with Fairstone. One the other hand, even if you’re not a homeowner, there’s no need to worry. Fairstone also offers unsecured loans that come with affordable monthly payments, perfect for someone with a low income.
If your income goes up after you take out the loan, that’s no problem. You can fully pay off the loan at any time without any early prepayment penalties. The interest rate on your loan is also fixed, so you don’t have to worry about your monthly payment going up when interest rates go up.
Read more: Fairstone review
LoanMeNow
Quick Facts
Terms: 3 months
Loan amount: $300 to $1,000
Rates: 28.00%-32.00%
Minimum income: $1,200 per month (after taxes)
With LoanMeNow, you can receive a loan in as little as 24 hours without any credit check. The quick approval time means that you can get the money you need fast when a financial emergency comes up and you’re caught in a bind. LoanMeNow’s customer service is also second to none.
LoanMeNow’s income requirements are pretty flexible. You must have $1,200 in monthly income (after taxes) from a salaried job, meaning self-employed workers aren’t eligible. You must also be at the same employer for the past couple of months and not be in the middle of either a bankruptcy or consumer proposal. If you’ve just been discharged from either of those, you must provide proof in writing.
If you meet these criteria, you should be able to qualify without issue. Similar to LendDirect, you must have a bank account that can accept direct deposits.
Mogo
Quick Facts
Terms: 6 to 60 months
Loan amount: $300 to $35,000
Rates: 9.9%-46.96%
Minimum income: $13,000 in gross yearly income
Mogo offers a number of unique perks and a 100-day money-back guarantee. If you’re not fully satisfied, you can get your money back on certain loans, no questions asked. Mogo approves applications from all different walks of life, whether you have low income or bad credit. Mogo also has a good reputation with its clients. With over 1.1 million members in Canada, it’s one of the largest lenders in the sub-prime borrowing space.
The application documents Mogo requests are pretty standard. You’ll need to provide a recent bank statement to prove that you have a bank account that’s active, and a history of your employment. Unlike other lenders, you only need to be steadily employed for at least 30 days to qualify, which helps when you have low income, since you may have accepted a less desirable job just to get by until you bounce back on your feet and land a better-paying job.
It’s important to be aware that checking your rate with Mogo will not impact your credit score and there is no obligation to take the loan. If you have a good or excellent credit score you might be referred to Lendful, Mogo’s partner lender, which may allow you to access a loan at the lower end of the 9.9%-46.96% interest rate range. However, if you have credit issues, Mogo may be less willing to lend to you versus other lenders in this space.
Loan Away
Quick Facts
Terms: 6 to 36 months
Loan amount: $1,000 to $5,000
Rates: 19.90%-45.90%
Minimum income: N/A
With an 80 to 90 percent approval rate, Loan Away is one of the most flexible lenders. Even if you have low income or bad credit, you can still apply. If you’ve been recently discharged from a bankruptcy or consumer proposal, that won’t necessarily stop you from being approved for a loan either.
The documentation you need to provide to Loan Away isn’t that bad for someone with a low income. Loan Away only requires two pieces of government-issued photo ID and a most recent payslip or bank statement to show your pay being deposited into your bank account. That’s it!
Getting approved for a small to medium size loan even if you have low income is quick and easy. You can expect to have the funds deposited into your bank account in as little as 10 minutes. Loan Away also allows you to pay back your loan early if you want to without penalty.
Four types of low-income loans
1. Unsecured loans
An unsecured loan is often referred to as a personal loan. When you think of the term “personal loan,” it’s not necessarily the type of personal loan that first comes to mind.
An unsecured personal loan is a personal loan that’s not secured by an asset, such as your home or car. Because of that, personal loans tend to come with higher interest rates since there’s a higher level of risk for the lender. If you’re unable to pay off the unsecured loan, it’s tougher for the lender to recoup the money owing to it. Lenders usually have income requirements with unsecured loans to prove that you can afford to pay off money that you borrow because they want to avoid accumulating any unsecured debt.
2. Small unsecured loans
A small unsecured loan is just that, a small personal loan that’s not secured by an asset. Each lender has its own definition of a “small” unsecured loan, but generally speaking, it’s usually $3,000 or less. The favourability of the loan terms will generally depend on how strong of a borrower you are. Even though you have a low income, you may be able to make up for it with a strong credit score and high net worth from financial assets that can easily be liquified into cash.
3. Secured loans
A secured personal loan is the opposite of an unsecured loan. It’s a loan secured by an asset, such as your home or car. Because the loan is secured by an asset, referred to as collateral, that can be sold if you fail to repay the loan according to the agreed-upon terms. A secured loan almost always comes at a lower interest rate than an unsecured loan.
Even if you have little to no income, a lender may be willing to grant you a secured loan, as it knows it has the assets as a backup in case you are unable to pay them back.
4. Payday loans
Payday loans are a type of loan you generally want to avoid and should only be considered as a last resort. This is because they typically come with steep fees and high interest rates. It’s not unheard of to be paying an APR of 400 percent or higher – ouch!
Payday loans are almost always short-term loans for a small amount, so that helps soften the blow. Still, if you’re constantly relying on payday loans to get by, it can end up costing you a lot over the long-term.
That being said, payday loans can be a good last resort option if you’ve exhausted all other lending options and you have no other choice. Just make sure you have a plan to pay any money you borrow off. The last thing you want to do is to get in the cycle of using one payday loan to pay off another one and so on.
How to choose a lender
Decisions, decisions. Are you trying to settle on one lender? Choosing one lender can be tough where there are so many out there. To make your decision easier, here are some of the criteria to consider when choosing a lender.
Reputation
Lender reputation for low-income loans is key. Although most lenders are honest, unfortunately, there are a few bad apples out there.
Just because you have a low income, it doesn’t mean that you should accept money from anyone. You want to do your research and make sure you’re accepting funds from a reputable source.
Reputation is how clients both past and present perceive a lender. If a lender has a bad reputation, chances are there’s a good reason. It’s best to avoid a lender like this, even if you get approved for a loan, as it may be more trouble than it’s worth.
Read reviews
A great way to find out about a lender’s reputation is by reading its online reviews.
When reading reviews you don’t just want to read the reviews from one source but from several. Look for reviews posted on an independent third-party platform like Google or Facebook or on community forums like Reddit.
If you see reviews on a lender’s website, you want to take those with a grain of salt, as the lender is most likely to have cherry-picked the best reviews and left out the not-so-flattering ones.
Eligibility
Before you apply to a lender, you want to make sure you actually qualify there. That means taking the time to read its basic qualification criteria.
If you’re applying for a low-income loan, unless you’re pledging some kind of security like real estate, the lender will usually want to see that you earn at least some income. If you don’t earn enough income to qualify, there’s little sense in applying at that lender.
You should also review the lender’s minimum credit requirements. Some lenders don’t need a credit check, while others have a minimum credit score. You want to know this ahead of time as it’s a waste time to apply if you don’t qualify.
Ease of use
You don’t want to choose a lender whose website is full of glitches. Not only might it be challenging to apply, but it’s also possible that your personal information could be compromised.
You want a website that’s easy to navigate and offers a quick and simple application form. It should be clear from the get-go how to apply for a loan online. If it’s a struggle to find out how to apply, chances are the rest of the process won’t be smooth either. Do you really want to spend your time and energy on a lender like that? You probably don’t.
How to qualify for a loan with a low income
Applying for a low-income loan is a lot like applying to borrow money for a personal loan or a mortgage. Lenders will ask for information and supporting documentation on your identity, income, assets, credit, and debts. The information you need to confirm your income depends on whether you’re an employee or self-employment.
If you’re an employee
All the lender may ask for is a letter of employment and a recent payslip. The lender will call your employer to confirm you’re still working there. If you’re new at your job, the lender may ask for tax slips over the last two years to confirm your earnings at your previous job.
If you’re self-employed
Lenders typically ask for your tax returns and notices of assessment over the last two years. It’s quite common for a self-employed individual to write off as many expenses as possible to minimize the taxes you have owing. In recognition of this, in order to get a loan if you’re self-employed, low-income lenders may be willing to increase your after-tax earnings by a higher amount.
If you’re newly self-employed
Low-income lenders may be willing to look at alternative documents, such as bank statements and signed purchase agreements. Based on that, a lender can make a reasonable estimation on what income you can expect to earn and grant you a loan based on that.
Other things a lender may ask for
At a bare minimum, lenders will want you to compile a list of your assets. This provides the lender with a good overall snapshot of your net worth. This includes real estate, vehicles, savings accounts, RRSPs, TFSAs, stock, bonds, pensions, etc. The lender may ask to see statements to confirm the values you’re providing, especially if an asset is being used as security for a loan.
Credit and debts are related to each other. A lender will usually want to see a copy of your credit report. Before a lender grants you a loan, they’ll want to see that you have a good credit score and a track record of paying loans on time and in full. Some lenders don’t ask for a copy of your credit report, but you’ll almost always pay higher interest rates because of it. If you have a weaker credit score, there are even some lenders that can provide loans without doing a hard credit check.
Your credit report shows the lender your outstanding debts. This includes student debt, personal loans, auto loans, unsecured lines of credit, and mortgages. This matters because if you have a lot of debts, it could hamper your ability to make payments on any new loans you’re taking out. If you’re planning to use the loan proceeds from the low-income loan to pay off an existing loan, the lender will want to know. This could help you qualify since your debt load will be reduced.
The lender will also want to see a government-issued photo ID, such as a driver’s license or passport. This is to prove that you are who you say you are.
Final word
Hopefully, after reading this article you realize there’s still hope to get a loan if you earn a low income. By working with the right type of lender, you can get the money you need when you need it most.
FAQs
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail and Financial Post.
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