Loans for Bad Credit in Canada
What You Should Know
- You need a bad credit loan if your credit score falls below 540.
- The interest rates typically exceed 19%, and the term lengths usually do not exceed 36 months.
- If you have collateral to put down, you may get a better interest rate even if your credit score is low.
- The three alternatives to getting a bad credit loan are RRSP/TFSA withdrawals, home equity loans, or borrowing from family.
Most Popular Loans for Bad Credit
Warning: Be cautious with very high interest loans (e.g. payday loans)
High-interest loans are unsustainable for extended periods and can be expensive for long-term borrowing. If you are currently facing financial challenges, reach out to Credit Counselling Canada for complimentary financial counseling at +1 866-398-5999.
| Lender | Funding Amount | Term length | Number of Employees | ||
| 9.99% - 46.96% | $500 - $35,000 | 9 - 78 months | 390 | ||
| 19.90% - 45.90% | $1,000 - $5,000 | 6 - 36 months | N/A** | ||
| 19.99% - 46.80% | $1,500 - $20,000 | 12 - 60 months | 8 | ||
| 23% | $500 - $750 | 90 to 120 days | N/A** | ||
| 29.99% - 46.96% | $500 to $15,000 | 9 - 60 months | 288 | ||
| From 46.93% | $50 - $10,000 | Depends on type of loan | 794 | ||
| From 46.93% | $1,000 to $15,000 | Up to 60 months | 500+ | ||
| 29.99% - 46.96% | $500 - $20,000 | 9 - 84 months | 785 | ||
| 19.99% - 34.99% | $500 - $12,500 | 12 - 60 months | N/A** (Part of CanCap Group) | N/A** | |
| 19.99% - 46.93% | Up to $15,000 | N/A | N/A** | ||
*To qualify for the evergreen loan from Spring Financial, you must spend 12 months completing a foundational borrowing program.
**This information could not be found online or the source is uncertain.
About Loans for Bad Credit
A bad credit score can restrict you from getting loans. If your credit score is less than 660, you should expect your loans to have higher than average interest rates. If your credit score falls below 540, you will be severely limited in your loan access until you improve your credit score.
Although these bad credit loans may come with higher interest rates than traditional loans, they provide access to the money you need when other lenders don't approve your application.
You can find various loan amounts and repayment terms that fit your needs. You should expect typical repayment periods of nine to 36 months. Interest rates typically exceed 19% and approach 40% or higher for payday loans.
APR for Bad Credit Loans in Canada
APR above 22% is considered high, exceeding the interest rates of most credit cards. Additionally, an APR above 40% is considered extremely high. You should avoid loans that have an APR higher than 40%. You can use the APR calculator to determine the APR of your loan.
Bad Credit Loans: Advantages & Disadvantages
| Advantages | Disadvantages |
| Accessible with Bad Credit | Higher Interest Rates |
| Fast Approval and Funding | Shorter Loan Terms |
| Does Not Require Collateral (usually a borrower can offer collateral to lower interest rates) | High Upfront and Loaned Fees |
Advantages:
- Accessible with Bad Credit: Conventional lenders avoid clients with bad credit scores. Bad credit loans allow people to get financing even if their credit score has taken a hit.
- Fast Approval and Funding: Bad credit loans have faster funding speeds than traditional loans. In some cases, such as payday loans, you can receive funding in hours.
- Does Not Require Collateral: Bad credit loans often do not require collateral. A borrower may still offer a collateral to the lender for a lower interest rate. Having a collateral can increase your chances of approval at a lower interest rate.
Disadvantages:
- Higher Interest Rates: Borrowers are charged higher interest rates due to increased lender risk. As a result, the overall cost of the loan will be more expensive than loans to borrowers with good credit scores.
- Shorter Loan Terms: Loans for bad credit generally have shorter payback periods. This results in high monthly payments and in a lower amount you can take out.
- High Upfront and Loaned Fees: Bad credit loans also often have high origination fees that may lead to APRs well above 40%.
How to Improve Your Bad Credit
- Keep your credit card utilization ratio below 30%.
- Pay all of your bills on time and in full.
- Check your credit report for errors and dispute them if you find any.
- If possible, keep older lines of credit and credit card accounts in good standing.
- Set up automatic payments if it helps you remember to pay your bills on time.
- Use 0% balance transfer cards or personal loans to consolidate existing debt.
Types of Bad Credit Loans
A few different types of loans are available for borrowers with bad credit. Borrowers typically use these loans to consolidate debt, buy a car, or finance home repairs. While there are five types of bad credit loans, they fit into two categories:
- Secured Loan: These loans use collateral, such as a house or car. Because of the collateral, secured loans have lower risk and lower interest rates than unsecured loans.
- Unsecured Loans: These loans don’t have collateral. Because of the higher lender risk, they require more prudent application processes. Additionally, the interest rate is typically higher.
This section will discuss the five main types of bad credit loans and their implications.
- APR: 9.99% +
- Funding amount: $100 - $5,000
- Term length: 1 month - 5 years
Personal loans for bad credit can either be secured or unsecured. A bad credit personal loan is the most popular option due to relatively low interest rates and widespread accessibility. Secured personal loans usually have lower interest rates, higher principal amounts, and longer loan terms. There are also different types of personal loans:
- Line of credit: A credit balance from which you can withdraw and repay as needed. Line of credit requires you to cover interest charges as minimum payments. As such, they are popular for emergency funds and borrowers who prefer flexibility. Line of Credit often has a variable interest rate that changes with the Prime Rate.
- Installment loans: Receive a lump sum upfront and pay it off over time. They are repaid in regular installments over the term of the loan. Installment loans for bad credit are popular with borrowers who want to know their loan payments and want to have them fixed throughout the loan maturity.
Popular Lenders for Bad Credit Personal Loans in Canada
- APR: 19.99% +
- Funding amount: $100 - $5,000
Credit cards provide a convenient way to borrow money. Some of the best credit cards also have features that allow you to earn rewards or cash back. However, it is essential to note that some credit cards may also come with an annual fee and a relatively high interest rate.
Credit cards for bad credit are typically secured cards that require collateral or have a high annual fee, a high interest rate, and a low spending limit. This makes it challenging to receive funding if you're in a pinch, but a credit card is a great instrument to improve your credit score.
As you build up a good credit score, you can qualify for balance transfer cards, which provide promotional low interest rates on balance transfers. This option allows you to leverage a temporary lower interest rate to avoid unnecessary interest charges. Balance transfer rates can be as low as 0% for a few months, but they usually have a balance transfer fee of around 2%.
- APR: 20% +
- Funding amount: $100 - $1,500
- Term length: 2 - 4 weeks
Payday loans are designed to provide emergency funding to cover expenses until your next payday. Payday loans have short-term lengths and quick funding speeds. Additionally, they are traditionally easier to qualify for, making them a popular bad credit loan.
Payday loans can have very high APRs. You should avoid payday loans due to predatory lending practices, often difficult to recognize without financial knowledge.
A payday loan must be treated as a last-resort financing option. Before taking a payday loan, you should consider other options, including getting a personal loan or borrowing from friends or family.
Popular Payday Lenders for Bad Credit
- Auto Loan APR: 11.99% - 29.99%
- Car Title Loan APR: 34.00% +
- Funding amount: $1,000 - $10,000
- Term length: 1 - 60 months
Car loans are secured loans that use your vehicle as collateral. This means missing payments can result in the seizure of your car. Depending on whether you already own a vehicle or are looking to finance a new one, there are two types of car loans.
- Auto loans are designed for individuals who want a new car. This option has lower interest rates than title loans. Auto loans are available through online lenders, large banks, credit unions, and directly through car dealers. These loans typically have rates from 11.99% - 29.99%.
- Car title loans allow individuals to borrow against their existing car. To use a car title loan, you must fully own a vehicle under five years old. This option typically has very high interest rates. The lenders sampled had rates from 34.16% to 64.86%.
Popular Auto Lenders for Bad Credit
Popular Car Title Lenders for Bad Credit
- Private lender APR: 10% +
- B-Lender APR: 6.54%
- Funding Amount: Varies
- Term Length: 6 - 36 Months
Mortgages are secured loans used to purchase a house or property. They usually require a long-term commitment and a good credit score. Even though a conventional mortgage is inaccessible to people with bad credit, private lenders and B-lenders offer solutions for people with bad credit.
- Private Mortgage Lenders are more likely to approve you for a mortgage but have less favorable lending criteria. For example, Interest rate APRs commonly exceed 10% as of May 29, 2024. Additionally, you’ll need a minimum down payment of 20% to 35%. Private lenders have very short-term lengths ranging from 6 to 12 months. You will need to refinance at the end of your term.
- B-Lenders provide mortgages to applicants who are just below the creditworthiness requirements of the big banks. Maybe your debt service ratios are too high, or your credit score is not high enough. They are more selective than private mortgage lenders but have better conditions. For example, interest rates are around 6.54% as of May 29, 2024. Their rates are typically 0.5% to 2% higher than prime lenders. B-lender mortgages usually have one to three-year terms.
Popular Private Mortgage Lenders
Popular Mortgage B Lenders
Bad Credit Loan Requirements
Lenders rely on your income and collateral to qualify for a loan with a bad credit score. A steady income source can help you negotiate a lower interest rate. In addition, they will also assess your debt service coverage ratios (DSCR) to determine whether you have enough funds to cover all of your debts. High DSCR is risky because it implies that a large chunk of your income must go toward debt payments. Lower ratios are less risky and may receive lower interest rates.
If your financial situation does not get you approved for a loan, you may get approved with a co-signer. This additional applicant will take responsibility if you cannot repay the loan. The co-signer must typically have a good credit score and a stable income. If you are meeting the income requirements and just need a little boost, you can talk to your immediate family members, such as parents or siblings, to be a guarantor for your mortgage.
The Details of Bad Credit Loans
Before getting a bad credit loan, it's essential to understand the loan characteristics in detail. This section discusses the characteristics of bad credit loans compared with the characteristics of regular loans.
Interest Rate
Bad credit loans have higher interest rates than loans for people with good credit. This is because lenders view borrowers with bad credit as a higher risk and charge higher interest rates to compensate for the risk.
Interest rates for bad credit loans in Canada can range from around 10% to over 50%, with some lenders charging even higher rates. The average interest rate for bad credit loans is around 20%.
Fees
Bad credit loans in Canada generally have high origination and other fees, such as application charges, closing costs, and late penalties. The prices and amounts change with the lender and type of loan. Below are some of the most common fees and their typical costs.
- Origination Fee: This is a fee charged by the lender for processing the loan application and is usually a percentage of the loan amount, ranging from 1% to 5%. For example, on a $10,000 loan with a 3% origination fee, the fee would be $300.
- Application Fee: The lender charges a fee for evaluating the borrower's application, ranging from $50 to $100.
- Closing Costs: These are the costs associated with finalizing the loan and can include fees for things like credit checks, title searches, and legal documents. Closing costs can vary widely but are typically a few hundred dollars.
- Prepayment Penalties: Some lenders may charge fees for repaying your loan early. This fee depends if you have an open or closed loan. Open loans will have no prepayment penalties.
- Late Penalties: Bad credit loans may also include penalties and late fees for missed or late payments. Sometimes, lenders may offer a grace period for late payments or allow borrowers to make partial payments on the loan.
These fees can significantly increase the cost of a loan. Additionally, they won't be included in the interest rate. Many bait-and-switch lenders will advertise low rates to lure in borrowers and include various fees that are difficult to understand.
As such, comparing loans using the annual percentage rate (APR) is essential. APR calculates the actual cost of borrowing, including the fees. The interest rate alone does not include high-cost fees.
Term Length
The term for bad credit loans in Canada typically ranges from 6 months to 5 years. The term length will affect your monthly loan payment and total interest paid:
- Longer Term Length: Your monthly payment will be reduced, but you'll pay more interest over the loan's lifetime. Additionally, you may have to collateralize something.
- Shorter Term Length: Your monthly payment will be higher, but you'll pay less interest over the loan’s lifetime. Additionally, you'll be debt-free sooner. These tend to be unsecured loans.
A longer-term length may help you qualify for a loan if you can't meet debt service ratio requirements. However, balancing monthly affordability and overall loan cost is essential when deciding on a term length for your bad credit loan.
Repayment Schedule
Typically, the payments will remain the same throughout the loan duration, and you'll know exactly how much you owe each month. Make sure to make all your payments on time because late payments can lead to additional fees and negatively affect your credit score. Increasing your credit score will provide access to more favorable loans.
Some loans have various features, such as skip-a-payment options or grace periods that allow you to pay a bit later without penalty. Ask your lender if any if these options are available. Additionally, you'll want to understand if your loan is open or closed:
- Open Loan: The ability to prepay the loan at any time without penalty.
- Closed Loan: There are penalties for prepaying too much.
Processing Speed
Bad credit lenders typically provide same-day loans. However, there are a few scenarios that can slow down the process. Initially, if the loan is secured, there will be additional steps to appraise the value of the collateral. Additionally, more significant loan amounts, such as $10,000, require a more rigorous application process. Generally, you should expect funding to occur within a few hours or days after submitting the application.
Alternatives to Bad Credit Loans
Borrowers with bad credit have few lending options. As they rebuild their credit score, more opportunities will appear. While borrowers should seek to improve their credit scores, alternative options are available.
RRSP Withdrawal
You can withdraw money while avoiding loans altogether if you have sufficient funds in your RRSP account. Up to 30% of the withdrawal can be subject to withholding taxes. This will be immediately retained by your financial institution, meaning you'll only receive 70% to 95% of the total withdrawal amount.
Home Equity Loans
Homeowners can secure their home equity by utilizing many mortgage products. Many private mortgage lenders and B-lenders specialize in loans for bad credit. These loans will have a lower interest rate than other options but typically require a maximum of 80% loan-to-value (LTV). However, they'll take longer to receive funding, and you can risk home foreclosure if you frequently miss payments. Some of the most popular home equity options include:
- HELOC: An account with the flexibility of borrowing and repaying money as needed. Interest is only charged on amounts taken out.
- Second Mortgage: An additional smaller mortgage. Like an installment loan, you'll receive the loan amount as a lump sum and begin making monthly payments.
- Reverse Mortgage: Homeowners over 55 can receive a lump sum or monthly payments, which they will only need to pay once selling the home.
Friends and Family
Borrowing from friends and family may be the best option for better credit. It's a great way to avoid loans with expensive interest rates and fees. Although it can seem awkward, having an honest conversation about your financial needs can go a long way in avoiding any misunderstandings down the line. You should also develop an agreement that outlines the repayment terms and interest rate, if any.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.