Yes, there are loans for bad credit available in Canada for those who need them. Some are good options, some not so good. But anyone looking at them needs to educate themselves.
People who have poor credit scores need and deserve options just like everyone else, even if these options come at a bit of a cost. Or come with risks. Or both.
How can you know whether it’s a good idea to take out a bad credit loan? How can you keep yourself, your family, and your money safe as you look through the different choices available?
Education is key. And don’t worry, we have tips that can help you navigate through these uneasy waters.
What is a bad credit score?
A credit score is a number between 300 and 900 that represents a credit bureau’s opinion of how likely you are to pay back any money you owe on time. The higher the score, the lower your perceived risk.
Credit scores are calculated using the information in your credit report. This includes:
- Household debt
- Length of credit history
- How much credit you have available
- Your payment history
There are general categories that represent the range within which your score falls.
| Excellent | Very Good | Good | Average | Poor | |
|---|---|---|---|---|---|
| High end | 900 | 759 | 724 | 659 | 559 |
| Low end | 760 | 725 | 660 | 560 | 300 |
Why having good credit is important
An excellent credit score is considered anything above 760.
Having a good credit score can come with advantages. You may be able to negotiate better interest rates on any borrowing, such as a mortgage or car loan. Plus, you may be approved to borrow for higher amounts, and you could have an easier time finding a property to rent too.
To get a good credit score you’ll want to focus on keeping your credit usage low, which means using your credit responsibly – this includes, among other things, not maxing out your credit card every month. It’s critical to pay any amount owing every month on time.
The more responsibly you use your credit, the higher your score will go.
How you could fall into a bad credit score
Credit scores below 560 are considered “bad,” and there are many reasons why someone might have this score.
Your credit score could be bad for several reasons, including these:
- You made loan payments late or missed them completely.
- You closed several older accounts (loans, credit cards, etc.), thus shortening your average credit age.
- You applied for too many loans or lines of credit at once, appearing desperate for credit.
- Your credit utilization ratio (how much of your available credit you’ve used) has dramatically changed or is extremely high.
- You’ve applied for bankruptcy or have defaulted on loans in the past few years.
Every personal situation is different, but bad credit generally occurs when someone is perceived to be a high risk for a lender.
If you find yourself in this situation, you’ll likely find it extremely difficult to be approved for loans and credit. And when you are approved, you’ll likely be faced with higher interest rates.
How loans for bad credit work
But just because you have bad credit doesn’t mean you don’t have options.
Even with a bad credit score, some people are able to obtain credit through alternate lenders. These are lenders that offer different terms than traditional lenders do, and they don’t usually involve a credit check.
One type of loans for bad credit are unsecured loans, which means there isn’t any collateral necessary to qualify. These can be appealing for anyone who needs cash but knows they have a low credit score and likely won’t be approved by traditional lenders.
Another option available would be secured bad credit loans, which uses one of your assets (like your home) as a collateral. This makes it easier to qualify, but also puts you in danger of losing your house if you’re unable to pay back the loan.
You may also come across bad credit loan options that require a cosigner. This can also be a way into a more favourable loan, but puts a lot of pressure on your cosigner to cover your loan in the case you’re unable to make the payments. Not everyone has access to family or friends who would be willing to do that for them.
How are bad credit loans in Canada different from other types of loans?
Of course, loans for bad credit are going to have different parameters than typical loans.
Alternative lenders that offer these types of loans usually don’t check your credit score during the application process. Instead, they focus on your income as well as a few other factors.
These loans are often unsecured and almost always have a higher interest rate. Not only this, but any related fees will usually be significantly higher than with traditional loans. Loan amounts are also smaller, much of the time, and the payment plans can be much more strict.
Despite these differences, though, bad credit loans are readily available and offer flexibility for those who want to take advantage.
How can loans for bad credit help?
Loans for bad credit may help in some ways for anyone with bad credit. They can help:
- Get you back on track financially
- Improve your credit score
- Build a credit history to add to your credit file
If you’re in a tough spot and need help fast, a bad credit loan could very well be your only option. They can help you cover unexpected expenses and (if you pay them off on time) add good behaviour to your credit report – helping increase your credit score.
But you have to be absolutely sure you have a plan to pay it off on time, or else the likely high interest rates could stack up fast and you’ll be in an even bigger hole than you started with.
Pros and cons of loans for bad credit
There are a few pros and cons to consider when looking at loans for bad credit.
3 pros of loans for bad credit
There are 3 main advantages of loans for bad credit.
1. Easily available
Loans for bad credit are quite easy to get. There isn’t usually a hard credit check, and many can be accessed online, eliminating the need to go to a physical bank or financial institution to fill out the paperwork.
Plus, faster applications can lead to faster approval and deposits.
Not to mention they may be your only loan option if you find yourself in a situation where your credit score isn’t where you want it to be but you desperately need cash for an emergency situation.
2. Helps improve credit
As long as you’re keeping up with the payments, this type of loan can help raise your credit score. As you make the monthly payments, you’re building a positive repayment history to add to your credit file.
This can be incredibly helpful and allows you some breathing room as you try to get your finances back on track.
3. Use as you please
As mentioned, bad credit loans can offer you the flexibility you need to get things back in order.
They can be used for just about any purpose you need, including:
- paying old debts,
- covering expenses during a period of illness or unemployment,
- paying for a desperately needed car or house repair, and
- other emergency situations.
2 cons of loans for bad credit
But the grass isn’t always greener – there are still some downsides to bad credit loans. Here are 2 of the main drawbacks to consider.
1. Higher rates
Because the lender is taking more of a risk by letting you borrow in this way, they tend to charge higher interest rates for bad credit loans.
Poor credit can be seen as an indication of your inability to make payments, so landers charge this extra money in order to cushion the blow in case of default, etc.
You may also find that you need to make your payments sooner, faster, or more frequently than other types of loans. This, combined with the higher interest rates, can create a very expensive situation. It’s important to read and understand the fine print of any loan before signing – especially with a bad credit loan.
2. Cycle of debt
If an inability to make payments has indeed been the borrower’s issue in the past, taking out a loan like this might be a bad idea. It can be all too easy to fall behind in payments and find yourself using a new loan in order to pay off the first one – otherwise known as a cycle of debt.
And, of course, this means more high fees and interest to worry about. It can turn into an extremely difficult situation.
4 alternatives to getting loans for bad credit
Before you commit to the risk of getting a bad credit loan, there are some alternatives to look at.
1. Secured credit cards
Secured credit cards, prepaid credit cards, and guaranteed credit cards are the best types to look for if you have poor credit. Each type has its benefits and drawbacks, but the most important thing is to avoid high interest rates.
A secured credit card can help you slowly build your credit over time. As long as you’re able to make timely payments in full, your credit score will see a positive impact.
Want one of the best secured credit cards in Canada? Check out the Home Trust Secured Visa – which has guaranteed approval and no annual fee.
Find out more here:
Choose how much you want your credit limit to be and rebuild your credit with this Secured visa.
- Genius Rating:
- Rewards rate: N/A
- Our credit estimate: Poor (300-560)
- Welcome bonus: N/A
- Annual fee: $0
- Interest: 19.99% on purchases, 19.99% on cash*
- FX feature: 2% FX fee
- * See rates and fees
- It'll take you to the bank's secure site.
- You'll get the chance to read the offer and product details.
- If you choose to apply, filling the form should take between 10 to 15 minutes.
- It'll take you to the bank's secure site.
- You'll get the chance to read the offer and product details.
- If you choose to apply, filling the form should take between 10 to 15 minutes.
2. Credit card balance transfers
A credit card balance transfer allows you to take the balance you owe on one credit card and transfer it to another credit card.
The advantage of this option is that you can usually transfer the balance to a card with a much lower interest rate.
And when interest rates are lower, you’re able to pay it off faster. For instance, the MBNA True Line Gold Mastercard offers a relatively low interest rate on balance transfers, which would be useful if you’re carrying other high interest debt.
It would be hard to get approved for this card if you have a bad credit score, but if you grab the card before your credit score falls too much, you’ll always have it around in case of emergency scenarios where you need to take advantage of lower interest rates. Just keep in mind it does have an annual fee.
The MBNA True Line Gold Mastercard gives cardholders some of the best permanent low interest rates of any credit card for a low annual fee.
- Genius Rating:
- Rewards rate: N/A
- Our credit estimate: Very Good (725-760)
- Welcome bonus: N/A
- Annual fee: $39
- Interest: 10.99% on purchases, 24.99% on cash*
- * See rates and fees
- It'll take you to the bank's secure site.
- You'll get the chance to read the offer and product details.
- If you choose to apply, filling the form should take between 10 to 15 minutes.
- It'll take you to the bank's secure site.
- You'll get the chance to read the offer and product details.
- If you choose to apply, filling the form should take between 10 to 15 minutes.
This offer is not available for residents of Quebec.
While it's low, not everyone wants to pay the MBNA True Line Gold Mastercard's annual fee. If this is you, the MBNA True Line® Mastercard is an excellent alternative. It has no annual fee whatsoever but still offers decent interest on balance transfers for a limited time.
$135 GeniusCash + 0% on balance transfers for 12 months (3% fee) + No annual fee.*You could get a 0% promotional annual interest rate (“AIR”)† for 12 months on balance transfers✪ completed within 90 days of account opening (3% transfer fee). Conditions and fees apply. And keep the savings going with low interest rates of 12.99% on purchases and 17.99% on balance transfers afterwards (24.99% on cash advances).
- Genius Rating:
- Rewards rate: N/A
- Our credit estimate: Good (660-725)
- Welcome bonus: N/A
- Annual fee: $0
- Interest: 12.99% on purchases, 24.99% on cash*
- Balance transfer: 0% for 12 months (3% fee)
- * See rates and fees
- It'll take you to the bank's secure site.
- You'll get the chance to read the offer and product details.
- If you choose to apply, filling the form should take between 10 to 15 minutes.
GC: $135
- It'll take you to the bank's secure site.
- You'll get the chance to read the offer and product details.
- If you choose to apply, filling the form should take between 10 to 15 minutes.
This offer is not available for residents of Quebec.
3. HELOCs and other secured loans
A home equity line of credit (HELOC) is a loan of sorts that allows you to take out certain amounts of money, pay it back, and then take out more if needed.
Of course, there is a definite limit to the amount you can borrow (usually up to 65% of your home’s value), but you’re able to use it and pay it back as often as you like, in whatever amount you need. You don’t need to pay interest on the portion of the loan you don’t take out – which means it can sit there for free until you really need it.
The important detail here is that a HELOC uses the value of your home as its security. Essentially, you’re borrowing against the equity in your home at a competitive interest rate.
The bottom line is that you risk losing your home entirely if you default. You’re also setting yourself back on your overall mortgage payment every time you take out money against your home.
4. Ask family for help
If you’re uncomfortable with getting a personal loan for bad credit, another option is to ask family or friends for help.
Of course, this is a risky option as it could create a strain on your relationship and cause considerable stress. Even though this is a much less formal option, it’s best left as a last resort.
How to apply for bad credit loans in Canada (what you should know)
There are several things to consider when applying for a bad credit loan.
Consider the costs of a loan for bad credit first
There are a few costs to consider that come with a bad credit loan, with the interest rate being an important factor.
1. The interest rate
Interest rates on loans for bad credit can range from 3% to almost 50%, so it’s important to consider this when making a budget and deciding what you can afford each month.
2. The additional fees
There are several fees that are often hidden within the details of personal loans for bad credit. Some of these are:
- loan origination fees (usually 1% of the total loan amount),
- missed payment penalties, and
- various small admin fees.
It’s important to read all the fine print to see if any of these or other fees have been added.
3. The loan term length (and how it impacts overall cost)
Loan terms typically range from 6 to 60 months, but each loan is different. And the longer the loan, the more interest you’ll pay overall, so you definitely want to be aware of this detail.
A shorter loan means higher payments but lower costs overall.
You’ll need to consider what you can afford to pay monthly when considering the loan term.
Decide between a secured loan vs. a guarantor loan
A secured loan is a loan that requires some kind of collateral. Often, people use their house or vehicle as their security.
A guarantor loan involves someone else (the guarantor) co-signing for the loan and essentially pledging their own assets if the borrower defaults in any way.
Relationships can be strained between borrow and guarantor if payments are missed and the other party is required to provide their asset. When choosing this type of loan, you’ll want to seriously consider the risk this person is taking for you and have detailed conversations with your guarantor before signing any paperwork.
For borrowers who have their own assets to use as collateral, a secured loan is likely a better choice. But if you don’t have any such assets, a guarantor or cosigner might be the best option for your circumstances.
Consider the various lenders
There are several different types of lenders for bad credit loans. Take a look at these options.
| Type of bad credit loan lender | Pros | Cons |
|---|---|---|
| Online lender | * Convenience * Loans with no credit check available * Range of lenders available | * No in-person service * High fees * High interest rates |
| Non-traditional lender | * Guaranteed approval may be available * Loans with no credit check available * Secured and unsecured options | * Usually no in-person service * High fees * High interest rates |
| Traditional bank | * Full service locations * Transparent fees | * Not available with most banks * Higher interest rates * Credit check usually needed |
Traditional banks always check credit scores during loan application, including loans for bad credit. Therefore, this isn’t usually the best option for those with low credit scores – in fact, most traditional banks don’t offer these types of loans at all.
These banks reduce their risk by offering loans to those with higher credit scores so the interest rates they charge are typically competitive – if you can get approved.
On the other hand, non-traditional and online lenders offer quick, convenient service but there often aren’t any physical locations to go to if you need to speak to someone in person. And you’ll have to be on the lookout for high interest rates, short-term payment requirements, and other hidden fees that could be extremely expensive.
Apply for a loan with bad credit
If you’ve decided to apply for a bad credit loan, you’ll find that there are several steps to the process.
First, you’ll need to fill out a loan application form that will ask for some personal details about your financial situation. It’s important to have certain documents available, such as payslips and tax returns, in order to provide the necessary information.
Some of these loan applications result in immediate approval (or denial), but others can take time to process. There are times when borrowers are asked to provide more information or documentation.
Term lengths for bad credit loans can vary. Some are as short as 6 months while others can go up to 5 years.
After approval, the funds will be deposited into your bank account, along with all the fine print on the terms of the loan.
Do you need a loan for bad credit?
A bad credit loan can be an option for some that need access to cash quickly for various reasons, but it can also lead to a cycle of debt with higher interest rates.
If you are in need of cash you will want to consider all options before applying for a loan with bad credit.
Have you ever taken out loans for bad credit? What was your experience?
Let us know in the comments below.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.FAQ
Are there personal loans for bad credit?
Yes, there are loans out there for those with bad credit, including personal loans. Although most banks won’t lend to people with poor credit, there are many lenders out there, including online lenders, that offer this type of service.
How can I get a loan with bad credit?
In order to get a bad credit loan, you’ll need to apply with one of several lenders and wait to be approved. A quick Google search will point you in the right direction, and many lenders have very convenient online applications and super-fast approval notices.
What companies will give you a loan with bad credit?
Canada has several lenders who offer loans for bad credit. Some examples include Loan Connect, Loans Canada, Loanz, and Mogo Loan. Before applying, read these notes on the pros and cons of these loans.
What about payday loans for bad credit? Is this a good option?
Payday loans aren’t usually worth considering. They typically have extremely high interest rates – the highest of any type of loan – and therefore aren’t considered a good choice for most people.
Who offers the best bad credit loans in Canada?
For competitive bad credit loans, you’ll want to check out LoanConnect and Loans Canada. These 2 lenders offer competitive interest rates.
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