How to Get a Loan with a Bad Credit History

A less-than-perfect credit score can feel like a life sentence, especially when you need a loan. You might have seen rejections and wonder if it’s even possible. The good news? Yes, you can get a loan with bad credit. The key is knowing where to look, what to expect, and how to avoid predatory lenders.

This definitive guide will walk you through the legitimate ways to secure a loan, even with a poor credit history, while protecting your financial future.

First, Understand What “Bad Credit” Means

In Canada, your credit score is a number between 300 and 900.

Poor/Fair Credit: Typically a score below 660.
Why It Matters: Lenders see you as a higher risk. This doesn’t mean you’re automatically disqualified, but it does mean your options will be different, and the loans will be more expensive.

Your 5 Best Loan Options with Bad Credit

While mainstream banks may turn you down, these avenues are more accessible for those with damaged credit.

1. Secured Personal Loans

This is your strongest option for getting approved and getting a reasonable interest rate.

How it works: You offer an asset (collateral) to back the loan. Common examples include a car, a savings account, or other valuable property.
Why it works for bad credit: The lender’s risk is low. If you default, they can seize the asset.
Pro Tip: If you have a savings account, a secured loan against it can help you build credit without actually spending your savings.

2. Loans from Alternative (B-Lenders) and Private Lenders

These are specialized financial institutions that cater to people with poor credit.

How it works: They focus more on your current ability to repay (income, employment) than your past mistakes.
What to expect: Higher interest rates and potentially smaller loan amounts than A-lenders (big banks).
Pro Tip: Always use a licensed and reputable B-lender. Avoid “loan sharks.”

3. Co-signer Loans

A co-signer with good credit can be your golden ticket.

How it works: Someone (like a family member) with a strong credit history applies for the loan with you. They are legally obligated to pay if you can’t.
Why it works for bad credit: The lender feels secure because of your co-signer’s strong credit profile.
Pro Tip: This is a huge ask and a significant risk for your co-signer. Only proceed if you are 100% confident in your ability to repay.

4. Credit-Builder Loans

This product is designed not just to give you money, but to help you rebuild your credit.

How it works: The lender places the loan amount (e.g., $1,000) into a locked savings account. You make fixed monthly payments over 6-24 months. Once paid off, you get the money, and your positive payment history is reported to credit bureaus.
Where to find them: Many credit unions and community banks offer these.

5. Payday Loans (The Last Resort – Use Extreme Caution)

How it works: Short-term, high-cost loans against your next paycheck.
The Major Downside: They come with astronomically high interest rates (often equivalent to an APR of 400%+). They can create a cycle of debt that is very difficult to escape.
Our Advice: Exhaust every other option on this list before even considering a payday loan.

Steps to Take Before You Apply

A little preparation can significantly increase your chances of approval.

Check Your Credit Report for Errors: Get a free copy from Equifax or TransUnion. Dispute any inaccuracies—this can boost your score quickly.
Calculate Your Debt-to-Income (DTI) Ratio: Lenders want to see that you have enough income to cover a new loan payment. Total your monthly debt payments and divide by your gross monthly income. A DTI below 36% is ideal.
Gather Your Documentation: Prove your stability with recent pay stubs, bank statements, and proof of employment.
Shop Around & Compare Rates: Don’t just accept the first offer. Use online comparison tools and get pre-qualified (a soft check that doesn’t hurt your score) with multiple lenders.

The “Hidden” Loan Options to Consider

Sometimes, a traditional personal loan isn’t the only answer.

Home Equity (if you’re a homeowner): Even with bad credit, you may qualify for a home equity loan or line of credit (HELOC) because your home secures it.
Borrow from Your Retirement Fund (RRSP): The Home Buyers’ Plan (for a first home) or the Lifelong Learning Plan (for education) allow you to borrow from your RRSP tax-free. You can also make a withdrawal, but it will be taxed.
Ask Family or Friends: A formal, written agreement can be a low-cost option, but it risks personal relationships.

How to Spot and Avoid Predatory Lenders

Protect yourself from scams and unfair terms:

Guaranteed Approval: No legitimate lender can guarantee approval without a credit check.
Upfront Fees: It’s illegal for a lender to ask for a fee before you get a loan.
High-Pressure Sales Tactics: Legitimate lenders give you time to decide.
Vague or No Contract: Always read the entire agreement, focusing on the APR, fees, and repayment schedule.

The Bottom Line: Rebuild as You Borrow

Getting a loan with bad credit is a short-term solution. The long-term goal is to fix your credit.

Choose a loan that reports to the credit bureaus.
Make every single payment on time.
Use this as an opportunity to establish a new, positive financial track record.

Conclusion: Your Path to Financial Recovery Starts Here

A bad credit history is a setback, not a dead end. By choosing the right type of loan, preparing your application, and borrowing responsibly, you can access the funds you need while taking the first step toward rebuilding your financial health.