Did you know that the average annual salary for Canadians aged 16-24 is $17,300 and $46,900 for ages 25-34?
While average income increases as you get older, you can wait till you are older to invest in things that matter like an education, a home, or a car. This is why you need a loan. But getting approved for a loan as a young person can be very difficult.
Traditional lenders require you to show substantial collateral, consistent cash flow, or a strong debt-to-income ratio in order to qualify for a loan. It can be hard to meet these requirements as a college student or young professional.
Luckily, you don’t have to limit yourself thanks to alternative loans. They are less restrictive and appealing to college students and young professionals. To learn more about alternative loans below is a comprehensive guide.
What are Alternative Loans?
Alternative loans are the types of loans you can secure outside of a traditional banking institution. They are often more readily accessible than banks. What’s more, they offer a streamlined lending process thanks to their use of online tools.
With alternative loans, you get to enjoy greater flexibility with regard to certain loan requirements such as annual revenue and credit score. For instance, you can get a loan even with a bad credit score depending on the lender.
Alternative lenders are also more approachable in case you want to make changes in repayment schedules.
5 Great Alternative Loans to Consider
Here are some types of alternative loans you can get as a college student or young professional.
1. Line of Credit
A line of credit is a type of loan that allows you to borrow money up to a pre-set limit. You can get a student line of credit to pay for your college education. It can help you cover basic expenses like tuition, housing, and books.
If you are looking to cover unexpected expenses, you can take out a personal line of credit from an alternative lender. When you get a line of credit loan, you can use as much or as little of the funds as you like, up to the stated maximum.
With this type of loan, you can only pay interest on the money you borrow. The payback of the money you owe can be done at any time.
2. Alternative Mortgage Loans
Looking to own a home? First, you need to get a mortgage. However, getting a mortgage from the major banks in Canada can be a hassle, especially for a young professional. They are usually strict in their lending requirements like income, credit score, and debt levels for a mortgage.
But this should not stop you from getting a mortgage and buying a home. You can get an alternative mortgage loan from a private lender, credit union, or more.
They don’t have tough mortgage eligibility criteria like banks. They are more accommodating since they also cater to young professionals with non-traditional forms of income like self-employment income.
3. Peer-To-Peer Loans
Peer-to-peer loans are types of online loans that involve matching people looking to borrow money to lenders or investors. It allows for lower overhead, making operations cheaper. As a result, investors get higher returns and borrowers low interest.
If you can’t qualify to get a loan through a bank or credit union, P2P loans can be a suitable alternative. You can connect with lenders online and review their terms to determine if you can get a good deal. P2P loans reduce the stress of dealing with a middleman.
You can get peer-to-peer loans to fund your start-up, do home renovations, or repair your car when you don’t have enough funds.
4. Equipment Loans
If you’re a college student or young professional, there are some equipment that can help you perform your daily tasks like laptops, digital cameras, or more. But buying these equipment outright can put a strain on your budget.
This is why you should consider getting an equipment loan. Typically, your alternative lenders let you finance up to 100% of the value of your new equipment. What’s more, the equipment often serves as collateral.
They are easy to qualify for as lenders just need to assess the value of the equipment to determine your eligibility.
Alternative lenders also offer microloans since most commercial banks consider them too little to issue. These are loans often below the figure of $50,000.
They are for people who don’t qualify for a huge loan or can’t afford to repay the large loan. Microloans offer small yet needed money to fund your new business as a young professional. They often cover operational expenditures, supplies, and more.
Advantages of Alternative Loans
Not sure about alternative lending? Here are reasons why you should apply for these types of loans.
Speed and Ease of Application
With the help of digital tools, alternative lenders provide simple and speedy application processes. Applying for a loan can be done within a minute.
Besides, these applications are much easier compared to traditional lending.
Instead of delivering the required documents in person, you can do so electronically. As a result, you will spend less time and effort on the application process.
Quick Turnaround Time
Not only are their applications quick but also their funding. Banks can take weeks or even months to get back to you about your financing. But alternative lenders send their approval or denial in a few days. It’s a great option if you have an emergency.
These loans tend to have a flexible underwriting process. Many college students and young professionals who may not qualify for a bank loan can access extra funds through alternative loans. With this money, you can invest in your education, new home, car, or business.
Diversity of Loans
Alternative lending paves the way for different types of personal and business financing. Whether you want to pay for your home, tuition, or equipment, non-bank loan alternatives can help you meet your financial needs.
High Approval Rates
There is nothing as bad as applying for a loan and getting denied. When looking at alternative loans, getting denied should be the least of your worries since these loans have a higher approval rate, unlike traditional loans.
Things to Consider when Selecting an Alternative Lender
To get an alternative loan, you need to find a lender first. Below are tips that can help you choose the right lender.
Identify Your Needs
There is no shortage of alternative funding options available for young people. Some can help you invest in your education, business, or necessary equipment. Since different alternative lenders have different specializations, you need to know the type of loan you want.
This can help you can cut through the noise of numerous lenders and only focus on the ones that cater to your needs.
Understand the Interest Rates Offered
Alternative loans may have higher rates if you have a poor credit score. When shopping for a loan, be aware of lenders with low-interest rates. While may be appealing, you may end up paying more due to other unreasonable loan terms.
Compare loan interest rates of several lenders before settling for one. Also, pay attention to how the interest rates are calculated.
Consider the Fees
Some alternative lenders charge fees for loans. It may be a fixed amount that needs to be paid once your loan application is sent to the lender or upon verification.
Ensure you know the rates at which the fees are charged by different lenders. It will help you make the right decision and avoid expensive fees.
Gauge Your Repayment Capacity
When you take an alternative loan, it’s advisable to repay it as soon as possible. Most alternative lenders offer short repayment terms so ensure you can pay them within the stipulated time.
Defaulting on loan repayment can negatively impact your credit score, discouraging other lenders from partnering with you in the future. Assessing your loan repayment capacity will also help you choose a loan tenure that works best for you.
Access Fast and Hassle-Free Loans
Alternative loans are a great way for young people to fund their education, start-ups, homes, and more. There are different types of online loans in Canada that can work for you.
At Kingcash, we offer fast loans from the comfort of your home. Contact us today to learn more.