Best Personal Loans For Bad Credit In Canada For April 2024

We reviewed 82 popular lenders based on 17 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the 10 best lenders based on the weighting assigned to each category:

• Loan details: 20%
• Loan cost: 25%
• Eligibility and accessibility: 30%
• Customer experience: 15%
• Application process: 10%

Within each major category, we also considered several characteristics that would benefit those with bad credit in particular, including awarding an extra five points for lenders offering a low maximum APR, a low minimum credit score, a high maximum loan term and cosigner/borrower capability. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like prequalification options and mobile apps.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

Here are some guidelines to help you compare personal loans for bad credit:

• Review the high end of interest rate offers: Given that your interest rate will largely be influenced by your credit standing, it’s common for individuals with a bad or poor score to be presented with rates leaning towards the higher end of the spectrum. So, when comparing personal loans for borrowers with bad credit, it’s wise to compare the steepest rates you might be offered.
• Opt for preapproval wherever feasible: Quite a few Canadian lenders provide a preapproval process for personal loans. This allows you to provide basic details like your monthly earnings, loan use and living arrangements to get an initial idea about potential loan amounts, rates and payments. The beauty of preapproval is that it usually involves a “soft” credit check, ensuring your credit score remains untouched as you explore your best options.
• Uncover hidden costs and fees: While many Canadian lending institutions might not impose origination charges, penalties for early repayment or fees for late payments, others might. It’s crucial to peel back the layers and delve into the complete fee structure of a potential loan offer, not just the showcased interest rate.
• Check out the lender’s customer service: A lender’s track record and customer service shouldn’t be an afterthought. Dedicated and supportive customer service can be a lifesaver, especially if you face challenges with your repayments or come across any unforeseen financial hitches during the loan term. It’s wise to explore the lender’s customer support options and sift through reviews from other borrowers to gauge if the lending institution aligns with your expectations.

In Canada, bad credit loans are financial solutions designed for individuals who might not have had the opportunity to establish a credit track record or may have encountered some financial setbacks. Generally, securing a loan can be challenging if your credit score falls below 600. However, certain lenders, including some highlighted here, are more accommodating, often considering borrowers with scores hovering around the 600 mark. It’s important to remember that the threshold for what constitutes a “bad” score can differ among Canadian lenders, so it’s always a good idea to verify if your particular score aligns with a lender’s criteria.

Borrowers with bad or poor credit ratings should be prepared for steeper interest rates and more restrictive loan amounts—primarily because the perceived risk to the lender is greater. Individuals with pristine credit histories often have access to the most attractive rates and flexible terms. For people navigating the world of bad credit, the primary goal is to find a suitable lending partner who understands their unique situation.

Bad Credit Loan Interest Rates

In Canada, interest rates on bad credit loans are determined by several factors, including your credit score, income, loan amount and the repayment period. Your credit history, particularly your credit score, is a huge factor in this calculation. While interest rates for personal loans can start as low as 4% for borrowers with excellent credit, individuals with bad credit might find themselves facing rates closer to the 35% mark. If you’re dealing with a bad or poor credit score, anticipate rates on the higher end. Before diving into a loan, consider taking measures to enhance your credit score for more favourable rates.

Bad Credit Loan Fees

Bad credit loans in Canada can sometimes involve additional fees. Here are some common ones to keep in mind:

• Origination fees: These are charges for processing your loan application and setting it up, often falling between 1% and 7% of the total loan value.
• Late payment fees: If your loan repayments aren’t punctual, lenders might charge a late fee. This could be a fixed amount, typically up to $30, or a percentage of the loan payment.
• Prepayment penalties: Opting to pay off your loan ahead of schedule? Some lenders might charge you a fee for this, typically around 1% to 3% of the remaining loan balance.
• Non-sufficient funds (NSF) fees: If your account lacks the funds to fulfill a payment, you might incur an NSF fee, which can range anywhere from $5 to $45.

It’s crucial to meticulously review your loan agreement to familiarize yourself with every cost or fee, ensuring you’re well-informed about your financial obligations.

In Canada, credit scores range from 300 to 900. A score below 600 is typically deemed “bad credit.” This categorization indicates a higher risk to lenders, often resulting from a history of late payments, high credit use or frequent loan applications. Such a score can pose challenges when attempting to secure financial products like mortgages, auto loans or business financing. Improving your score should be a priority, especially if you’re considering borrowing in the future. Remember, your credit score reflects your financial behaviour, so consistently good financial habits can lead to gradual improvements in your credit score.

Average Personal Loan Interest Rates by Credit Score

Your credit score plays a pivotal role in determining the interest rate for your loan. As a rule of thumb, the higher the credit score, the lower the interest rate.

Obtaining a loan with a less-than-stellar credit rating can be challenging. Nevertheless, the Canadian lending landscape offers various options. While personal loans can be either secured and unsecured, there are also alternative loans that cater to borrowers with bad or poor credit scores.

1. 1. 1. Secured & Unsecured Bad Credit Personal Loans
      • Secured loans: Backed by an asset such as your vehicle, property or even a savings account, secured loans present a lower risk for lenders, as they can seize the collateral if borrowers default. This security typically leads to more competitive interest rates and a higher chance of approval, even with a low credit score.
      • Unsecured loans: Unlike their secured counterparts, unsecured loans don’t require collateral. Since they inherently pose a higher risk to lenders, qualifying criteria will likely be more stringent, and interest rates are usually higher. Most loans fall into the “bad credit” category are the unsecured variety.
   2. 2. Student Loans for Bad Credit
      If post-secondary education expenses loom, a student loan tailored for bad credit could be a viable route. Federal student loans, available through the Canada Student Loans Program (CSLP), don’t typically involve credit checks for undergraduates. These loans offer flexible repayment options and, in some cases, portions of the loan may even be forgiven based on specific criteria.
   3. 3. Auto Loans for Bad Credit
      An auto loan is traditionally secured against the vehicle you’re purchasing. While Canadian financial institutions prefer credit scores around the 650 mark for the most attractive terms, many lenders specialize in bad credit auto loans. These might come with higher interest rates, but they offer a way to not only get a vehicle but also to boost your credit score with consistent, timely payments.
   4. 4. Payday Loans for Bad Credit
      These are short-duration loans meant to tide you over until your next paycheck. They’re often pitched to individuals with poor credit since many payday lenders don’t perform credit checks. However, they carry a significant warning: they come with astronomical interest rates. In some provinces, regulations cap the fees, but it’s essential to approach payday loans with caution and consider them only as a last resort.
   5. 5. Home Equity Loans & HELOCs for Bad Credit
      For homeowners with accumulated equity, a home equity loan or a Home Equity Line of Credit (HELOC) might be an option. Both use your home’s equity as collateral, making them secured loans.
      • Home Equity Loans: Disbursed as a one-time lump sum, they often have fixed interest rates and repayment terms.
      • HELOCs: These operate like a credit card against your home’s equity, allowing you to draw funds up to a certain limit, typically at variable interest rates.

While traditional Canadian lenders might expect credit scores in the vicinity of 620 or above for such products, there are niche lenders that might be more lenient. Still, borrowers with scores significantly below this benchmark may have to turn to private lenders, where terms can be less favourable. Be sure to understand all loan terms and costs before proceeding.

Navigating the financial terrain with a less-than-stellar credit score can be daunting. Yet, numerous avenues exist in Canada for individuals looking to secure a loan despite bad credit. Here’s a quick guide:

• Banks: Major banks might seem intimidating, but if you’ve been a loyal customer, some might be willing to negotiate with you. Although they might have stricter criteria, it doesn’t hurt to explore options with them.
• Online lenders: The rise of digital banking has ushered in various online lending platforms. These lenders are generally more lenient with their qualifications, albeit sometimes at the cost of slightly higher interest rates for borrowers with bad credit.
• Credit unions: Canada’s credit unions are community-focused, making them more understanding of individual financial situations. They often have more amicable terms for borrowers with lower credit scores.
• In-person lenders for bad credit loans:
  • Credit unions: As previously mentioned, these community-based institutions often have more favourable terms and a better understanding of local financial challenges.
  • Local banks: Some smaller, regional banks might be more flexible than the national chains.
  • Community programs: There are local initiatives and non-profits in various provinces that cater to those with financial difficulties. They might provide loans or direct you to trusted lenders.

Here are the five steps you can take to get a loan with bad credit:

1. 1. Know your score: Before embarking on your loan quest, get a credit report from credit bureaus TransUnion or Equifax.
2. 2. Budgeting is key: Before securing a loan, make sure you’re well-aware of your monthly budget and how much you can allocate towards repayment.
3. 3. Explore and pre-qualify: Pre-qualify with multiple lenders to understand the interest rates available to you.
4. 4. Consider a co-signer: A trusted individual with a better credit score can co-sign your loan, potentially getting you better terms.
5. 5. Application process: With the lender you choose, gather required documentation such as proof of income, Canadian identification and other relevant financial documents.

Related: How To Get Guaranteed Approval For A Personal Loan In Canada

Here are four ways to qualify for a loan with bad credit:

1. 1. Audit your credit: Familiarize yourself with your credit report and rectify any discrepancies.
2. 2. Assess the urgency: If you can hold off for some time, you might want to work on bolstering your credit score before seeking a loan.
3. 3. Collateral can help: Secured loans might be more accessible as they reduce lender risk. Remember, defaulting means you can lose the collateral.
4. 4. Look to credit unions: Their community-driven nature can sometimes provide better odds for those with low scores.

Here are four signs to help you identify bad credit loan scams:

1. 1. Upfront fees: Beware of lenders demanding fees before sanctioning the loan.
2. 2. Too good to be true: Ads claiming “Guaranteed Approval” or “No Credit Checks” should raise red flags.
3. 3. Unsolicited offers: If you didn’t initiate contact, be cautious.
4. 4. Licensing: Ensure your lender is licenced to operate in your province.

Below are three alternatives to personal loans for bad credit to keep in mind:

1. 1. Credit union loans: These community-based loans often come with a more understanding approach to your financial situation.
2. 2. Secured loans: By providing collateral, you might get more favourable terms, but the risk of loss is there.
3. 3. Co-signed loans: This involves shared responsibility. Remember, any default on your part affects your co-signer’s credit score too.

Related: Best Installment Loans For Bad Credit