Need a loan, but worried your credit score and income will hold you back?

If you own a home but struggle with bad credit or tight cash flow, you’re not alone. Many Canadians in your shoes find traditional loans either too expensive or flat-out inaccessible.

That’s a problem — especially when big expenses hit: repairs, medical bills, or covering high-interest debt. But here’s the good news: being a homeowner gives you leverage, even with bad credit. You just need to know how to use it.

In this guide, we’ll cover:

• The difference between secured vs. unsecured loans, and how your home can help
• Loan types that low-income homeowners actually qualify for
• What to expect in fees and interest (and how to avoid the worst of it)
• Smart strategies to boost your approval odds even without a high credit score

P.S. — just need that cash ASAP? Lotly can help. We work with you directly to understand your financial situation and develop creative ways to improve your outlook and save you money on loans and payments. Book a free consultation today to learn more.

How are bad credit loans different?

Functionally, there is no such thing as a  "bad credit loan". Loans are offered based on the borrower's creditworthiness, which is determined by their credit score and financial history. However, individuals with lower credit scores may have a harder time securing loans due to perceived risk from lenders.

When you have poor credit, the loans you qualify for may come with stipulations and fees you wouldn't otherwise see:

• Higher interest rates: Lenders may charge higher interest rates to offset the risk of lending money to someone with a lower credit score. This means you will end up paying more in interest over time.
• Origination fees: Some lenders may charge origination fees, which are upfront costs associated with the loan. These fees can be a percentage of the loan amount or a flat fee and can add to the overall cost of borrowing.
• Shorter repayment terms: Lenders may also offer shorter repayment terms for loans to individuals with poor credit. This means you will have higher monthly payments than someone with good credit who has access to longer repayment terms

That being said, you are not without options! Next, we'll compare the loans you have available to you:

5 loan options for bad credit

1. Secured Personal Loan

A secured personal loan requires the borrower to provide an asset (such as a car, home, or savings) as collateral. If the borrower defaults, the lender can seize the collateral to recover the debt.

Rates:

• Typically range from 7% to 15% for bad credit borrowers, but can vary based on the asset and lender.
• Lower than unsecured loans due to reduced lender risk.

Requirements:

• Must have a valuable asset to offer as collateral (e.g., car, home, investments).
• Proof of ownership of the asset.
• Proof of income and employment history.
• Legal age and Canadian residency.

Pros:

• Lower interest rates than unsecured loans.
• Higher approval chances for bad credit.
• Larger loan amounts and longer repayment periods.

Cons:

• Risk of losing the collateral if you default.
• May require more paperwork and time for approval.

Other Fees:

• Appraisal or registration fees for collateral.
• Possible origination and administrative fees.

Reviews: HelloSafe rates secured loans as offering "better rates and more favourable terms if you have assets," with fast online applications and good customer service.

2. Unsecured Personal Loan

An unsecured personal loan does not require collateral. Approval is based on creditworthiness, income, and other factors. These loans are riskier for lenders, so rates are higher, especially for bad credit borrowers.

Rates:

• Typically 18% to 34.9% for bad credit borrowers.
• Higher than secured loans due to increased risk.

Requirements:

• Proof of steady income.
• Canadian residency and legal age.
• Valid ID and bank account.
• Approval is harder with bad credit, but alternative lenders may be flexible.

Pros:

• No risk to personal assets.
• Faster approval process.
• Can be used for any purpose.

Cons:

• Higher interest rates.
• Smaller loan amounts.
• Stricter approval criteria for bad credit.

Other Fees:

• Origination fees, NSF (non-sufficient funds) fees, late payment fees.

Reviews: FatCatLoans highlights instant decisions and no collateral, but warns of higher rates and stricter penalties for missed payments.

3. Payday Loans

A payday loan is a small, short-term loan (usually up to $1,500) meant to cover expenses until your next payday. It is very easy to obtain but comes with extremely high fees and interest rates.

Rates:

• Capped at $14 per $100 borrowed (about 350% APR).
• Maximum legal APR for other high-cost loans is now 35%.

Requirements:

• Proof of income, address, and bank account.
• No credit check required; bad credit is not a barrier.

Pros:

• Instant approval and fast access to cash.
• No collateral or credit check needed.

Cons:

• Extremely high cost, risk of debt cycle.
• Short repayment period (usually two weeks).
• Can seriously damage credit and finances if not repaid on time.

Other Fees:

• NSF fees (up to $20 for dishonoured cheques).
• Additional late payment and collection fees.

Reviews: LegalShield Canada warns that payday loans are "very expensive" and can lead to a debt spiral, with significant consequences for missed payments.

4. Lines of Credit for Bad Credit

A line of credit allows you to borrow up to a set limit, repay, and borrow again as needed. For bad credit, these are usually unsecured and come with higher rates, but some lenders offer secured options with collateral.

Rates:

• Secured: 7%–15%.
• Unsecured: 11.95%–46.93%.
• MogoMini Line of Credit: 47.42%.

Requirements:

• Proof of income and Canadian residency.
• Collateral required for secured lines (e.g., home, investments).
• Some alternative lenders accept bad credit, but rates are higher.

Pros:

• Only pay interest on what you borrow.
• Flexible access to funds.
• Can help build credit if managed responsibly.

Cons:

• High rates for bad credit.
• May have annual or transaction fees.
• Harder approval for unsecured lines with bad credit.

Other Fees:

• Annual or monthly maintenance fees.
• Transaction fees for withdrawals or cheques.

Reviews: KOHO notes that lines of credit for bad credit are possible but come with higher rates and fees, and recommends comparing offers carefully.

5. Guarantor or Co-signed Loans

A guarantor (or co-signed) loan involves a second person with good credit agreeing to repay the loan if the primary borrower defaults. This reduces risk for the lender and can improve approval chances and rates for bad credit borrowers.

Rates:

• Can be significantly lower than standard bad credit loans, often in the 10%–20% range, depending on the co-signer’s credit.
• Still higher than prime rates, but better than payday or unsecured bad credit loans.

Requirements:

• Primary borrower: proof of income, Canadian residency, legal age.
• Guarantor/co-signer: good to excellent credit (typically 650+), stable income, low debt-to-income ratio.

Pros:

• Higher approval rates for bad credit borrowers.
• Lower interest rates and larger loan amounts are possible.
• Can help rebuild credit if payments are made on time.

Cons:

• Guarantor/co-signer is fully responsible if you default.
• Can strain personal relationships.
• Both parties’ credit can be affected by missed payments.

Other Fees:

• Standard loan origination and administrative fees may apply.
• No special fees for having a guarantor, but always review terms.

Reviews: Any Loans highlights that co-signed loans are "less risky for lenders," improve approval odds, and can offer better rates, but warns of the serious responsibility for the co-signer.

Tips for applying for loans with bad credit

Here are just a few practical tips for how to get a loan with bad credit — we'll also provide some examples to help you understand how these tips can play out in real life:

1. Negotiate with lenders directly

Approach smaller lending institutions or credit unions that may have more flexible policies than large banks. Be upfront about your financial situation and demonstrate your commitment to repaying the loan. Sometimes, a personal connection or showing honesty can make a difference and ensure you can still borrow money with bad credit.

2. Offer collateral beyond the usual

While secured loans often require collateral, think beyond traditional assets like homes or vehicles. Assets such as valuable collectibles, intellectual property, or even high-value equipment could be offered to secure the loan.

3. Showcase positive non-credit metrics

Highlight aspects that don’t appear on a credit report but demonstrate your financial reliability. For instance, providing evidence of consistent savings habits, utility bill payments, or rental history could help paint a more favourable picture.

4. Leverage freelance or side income

If you have additional sources of income, such as freelancing or a profitable hobby, include proof of this when applying. Lenders may see it as extra security even if it’s not your primary income source.

5. Join peer-to-peer lending platforms

Platforms that connect borrowers directly with individual investors often have more lenient credit requirements. Building a compelling story about why you need the loan and how you plan to repay it can increase your chances of approval.

6. Consider a professional reference

While guarantors are common, providing a professional reference (think a past employer willing to vouch for your reliability, or a previous client who knows your work well) could help encourage lenders to approve your application.

By thinking outside the box and presenting lenders with a well-rounded perspective of your financial situation, you may improve your chances of being approved, even with poor credit.

Improve your financial outlook with Lotly today

Let's go over some key takeaways:

• Bad credit doesn’t mean no credit; it just means higher interest rates, stricter terms, and fewer options. Expect shorter repayment periods, extra fees, and APRs ranging from 10% to over 300%, depending on the loan type.
• Secured loans, guarantor loans, and lines of credit offer better rates than payday or high-interest unsecured loans. Using collateral, a co-signer, or flexible lenders can lower costs and improve approval odds, even with poor credit.
• Creative strategies like showcasing side income, offering unconventional collateral, or using peer-to-peer platforms can boost your chances. Demonstrating financial responsibility beyond your credit score helps lenders see you as more than a number.

Lotly works with you to customize your loan experience and find the best fit for your needs. Our team understands that financial situations are unique, so we'll work with a network of 50+ lenders across Canada to find your ideal solution. Book a free consultation today to get started.

Frequently asked questions

What's the easiest loan to get with poor credit?

If you have poor credit, finding a friendly, low-interest loan that is easy to obtain can be challenging. However, there are a few options that may be more accessible for people with low credit scores:

1. Payday loans: These are short-term loans that typically do not require a credit check. However, they often come with high interest rates and fees.
2. Secured personal loans: These loans require collateral, such as a car or house, which reduces the risk for the lender and may make it easier to get approved.
3. Co-signer loans: If you have someone with good credit willing to co-sign your loan, lenders may be more willing to work with you since they have

Be cautious and aware of predatory lenders. These are lenders who take advantage of individuals in vulnerable financial situations by offering loans with extremely high interest rates and hidden fees.

How to get 10k immediately?

If you need $10k immediately and have bad credit, start by exploring personal loans from lenders specializing in loans with low credit. Look for online lenders or local credit unions that may offer quick approvals and funding.

Using collateral, such as a vehicle or other valuable asset, could increase your chances of approval. Alternatively, having a trusted co-signer with good credit can help secure the loan.

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