How does 2nd chance credit work?

Does your credit history no longer allow you to take out a new loan from your bank, yet you need financing for essential purchases? Know that there is a 2nd chance credit. Find out what it is to see if it’s right for you.

What is a 2nd chance credit?

credit loan

A second chance loan is a formula thought for those who have a bad credit history, but who cannot finance themselves a major purchase like a new car to go to work, for example.

Amortization is done between 1 to 5 year (s) and sometimes the financial institution requires collateral. To take out a second chance credit, you will have to turn to specialized organizations, because the banks do not offer this type of product.

His advantages

credit advantage

  • The 2nd chance credit is a loan like any other and will be reported and evaluated just like a traditional loan;

  • By taking care to respect the repayment terms, you will have the opportunity to restore your payment history in just a year or two, even after a bankruptcy or a consumer proposal;

  • Obtain financing despite the refusal of your bank, even if your property has been seized;

  • Easier access to traditional loans once you have proven your worth;

  • After a while, you will be able to get a more lenient interest rate if you have a good repayment history;

  • Normally, you don’t need justifications to get a second chance personal loan.

Its disadvantages

credit problem

  • A higher interest rate: the assessment of your interest rate is based on several factors such as economic conditions, the number of insolvencies and your credit history. Unfortunately you have to pay more, but it’s still understandable given the risks that your creditors take.

As the probability of ending up in default is greater, second chance loan organizations protect the profitability of their financing by applying a higher rate than a normal loan;

  • The total amount of your purchase is therefore much higher once you have paid all your monthly payments;

  • Transaction fees are also more expensive;

  • There are risks of fluctuations: because the interest rate is not fixed, a 2nd chance to credit risk exposes you to see your monthly payment increase if the economy leads to higher rates. This is why it is better to limit this type of credit to reasonable amounts and not to finance your home for example.

Our advices

credit loans

In view of the interest rate imposed, assess your financial situation well in order to anticipate monthly repayments. Although it is possible to get a 3rd chance credit in some financial institutions, it is best not to spoil your chances of finding a better credit rating and thus regain the confidence of creditors at the second attempt. Take the time to compare the offers to find the conditions that best suit your situation.

If your project can wait a bit, you can also redo your credit rating by taking out a credit card with a guarantee, for example. So your new history will get you a lower rate of interest when you sign your 2nd chance credit.

And above all, remember that the most important thing when you have an unflattering credit history is to meet deadlines well and not to go into too much debt over the long term. It’s not called a second chance by any chance!