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Have you been rejected by the banks and other more traditional lending institutions even though you have great overall financial health and a good credit score? Do you think that alternative lenders only work with those who have bad credit?
If you answered yes to either of those questions then you’ll be happy to know that the unsecured loan landscape is changing. Big unsecured lending has arrived and people with good credit can now get approved for the large loans they need and want without having to work with a bank or put up collateral.
Banks often scrutinize potential new borrowers and find risk even with those who have good credit scores. The alternative lending industry has witnessed the issues that good credit borrowers are experiencing and has finally stepped up to the plate.
Learn more about the perks of having a good credit score.
Features of an Unsecured Personal Loan
A personal loan is a specific amount of money that you can borrow from a lending company near you. The sum you borrow is then deposited into your bank account and must be repaid over time through divided installments with interest. Here are a few other key features of most unsecured personal loans:
- No Collateral – An unsecured loan is called so because you don’t have to provide security in order to qualify. You won’t be risking any assets when you miss payments, whereas defaulting on a large secured loan can, in the worst of cases, result in the foreclosure of your home or the repossession of your car.
- Loan Amounts – The size of your loan depends on which lender you apply with and how healthy your finances are. For instance, prime lenders, like banks and credit unions may be able to offer you larger unsecured loans (than subprime lenders) if you have a good income, credit score, and a low debt-to-income ratio.
- Interest Rates – Unsecured personal loans sometimes come with higher interest rates, ranging from around 5% – 40% APR. Borrowers with good credit can often qualify for an APR of about 10% and closer to 30% if they have bad credit. In Canada, 60% APR is the highest interest rate a lender can legally charge.
- Terms – The length of your repayment term also depends on where you apply, how strong your finances/credit are and the size of your loan. However, since there’s no security and therefore more risk involved, some lenders will want you to pay your unsecured personal loan back faster than a secured personal loan.
What Can You Use a Large Unsecured Personal Loan For?
These large unsecured loans do not require any collateral; they are given to borrowers based on credit score, credit history, income and overall financial health. While it may seem like these loans are hard to get approved for, they aren’t. If you have good credit, this is without a doubt the type of loan you should be looking for. This is especially true for those who have been rejected by a bank.
The great thing about an unsecured personal loan is that it can be used for all most anything, including but not limited to:
- Purchasing a new vehicle
- For home renovations
- To take a vacation
- To pay off high-interest credit card debt
- Down payment on a house
- School expenses or tuition
- Debt consolidation
There are numerous lenders looking to help get good credit borrowers approved for large unsecured loans. This means you have options, which is great for getting affordable interest rates and favourable terms.
How Do You Qualify For a Large Unsecured Personal Loan?
While you won’t have to provide any collateral, you may need several personal and financial requirements to qualify for a large unsecured personal loan, such as:
- A Reasonable Credit Score – Canadian credit scores go from 300 to 900. For the best approval chances, loan amounts, terms and rates, a good to excellent credit score of 650 – 900 is usually necessary. The closer your score is to the 300 – 600 (bad credit) range, the harder it is to qualify for appealing loan conditions.
- A Low Debt-to-Income Ratio – When you apply, lenders need to confirm how much unpaid debt you currently have, versus your gross monthly income. More debt means you may have trouble making payments, so it can be tougher to qualify for a decent unsecured personal loan with a DTI ratio of 40% or more.
- Healthy Bank/Income Statements – As mentioned, your income can also affect the conditions of your unsecured personal loan. Prior to approving you, most lenders will examine your most recent bank statements and pay stubs to see if you can afford your payments. The higher your income is, the better the results.
- Job Stability – Even if your credit is good, having a full-time job is especially important when applying for a large unsecured personal loan. While part-time workers, self-employed individuals, and people living on government benefits can get approved too, it may be for a smaller loan with a higher rate and shorter term.
When you apply for an unsecured personal loan, particularly a large one, you may need to provide these personal and financial documents as well:
- Government photo identification (passport, driver’s license, etc.)
- Proof that you have a permanent Canadian address (utility bill, etc.)
- Your cosigner’s personal and financial details
- A pre-authorized debit form or VOID cheque (for payment purposes)
Best Unsecured Personal Loans in Canada
Pros and Cons of a Large Unsecured Personal Loan
Every lender has its own approval requirements and offers different loan types, interest rates, and repayment plans. That said, there are a few notable pros and cons about large unsecured personal loans in general, including but not limited to:
- Less Risk – Since there’s no collateral involved, your lender cannot seize any of your assets if you default on your large unsecured personal loan.
- Liquid Cash – Most unsecured personal loans are deposited directly into your bank account after approval. You can then use your funds to cover any cost.
- Better Creditworthiness – If your lender reports to Equifax and/or TransUnion, good payments will gradually help build your credit score and credit history.
- Shorter Wait Times – While it may take a few days to receive a large unsecured personal loan, approval can still be quicker than it is with most secured loans.
- Higher Rates – Unsecured personal loans are riskier for the lender, so they often come with higher interest rates, especially if you have a low income or bad credit.
- Higher Standards – Large unsecured personal loans can have harder approval requirements because there’s no collateral to protect the lender if you default.
- Potential For Worse Creditworthiness – If your lender reports to Equifax or TransUnion, any late or missed payments will damage your credit.
- Penalties – Missing payments can result in late and NSF fees, your account being sold to a debt collector and legal consequences, like wage garnishment.
Large Unsecured Loans When You Have Bad Credit
Remember, the better your credit score and debt levels are, the easier it will be to get approved for credit products with good conditions and rates. However, there are ways to get approved for a large unsecured personal loan with bad credit, such as:
- Apply With a Cosigner – Some lenders will be more lenient if you have a stronger borrower to take over your loan payments if you can’t afford them. Watch out, because defaulting can endanger your cosigner’s finances as well.
- Have a Good Income – Most lenders simply want to know that you’ll be able to cover all your unsecured personal loan payments, including any interest and fees. If your income can showcase that, you may have better approval odds.
- Find a Bad-Credit-Friendly Lender – Many private lenders can approve you for a large unsecured personal loan with bad credit when a bank won’t. Be careful here too, as these private businesses may charge higher interest rates and fees.
Where Can You Get a Large Unsecured Personal Loan?
In Canada, you can apply for a large unsecured personal loan at several types of financial companies, including but not restricted to:
- Banks & Credit Unions – While approval requirements can be more strict, banks and credit unions are one of the safer places to apply for a large unsecured personal loan. Not only could you be eligible for more affordable loan rates, you’ll be protected by the top-tier security of a government-regulated business.
- Alternative Lenders – If you can’t qualify for a large unsecured personal loan from a prime lender, alternative lending companies sometimes have easier requirements. Nonetheless, alternative loans can be more expensive and harder for the government to control, so you need to be more cautious when applying.
- Peer-to-Peer Lenders – Online P2P platforms allow anonymous investors to supply borrowers with various loans, in exchange for a percentage of the interest made from the sales. These platforms make it easier for you to compare multiple offers and find a lender that sells the best unsecured personal loans for you.
Before you apply for any sort of large unsecured personal loan, make sure to research your potential lending source properly to confirm that they’re a legitimate business offering rates, fees and terms that actually suit your finances.
Never give your personal or financial information to a “lender” that charges illegally high rates, doesn’t have a solid reputation, or asks for payment prior to depositing your loan. Remember, if the deal looks too good to be true, it’s probably best to walk away.
Find out why you’ve been rejected for a loan.
Fees Associated With Unsecured Personal Loan
Unfortunately, a lot of borrowers forget to factor their lender’s service and administrative fees into the final cost of their credit product. Here are some of the common fees you can encounter with an unsecured personal loan, whether you have good or bad credit:
- Loan Origination Fees – Some lenders charge for the work required to process and deposit your loan. This origination fee usually equals around 1 – 8% of your final loan amount and may be charged on a one-time or per-payment basis.
- Prepayment Fees – Certain lenders will also charge a fee if you try to make any unsecured personal payments ahead of schedule. Thankfully, penalty-free prepayments are standard for many lending businesses these days. Just make sure you ask your lender about this type of fee before you sign your loan documents.
- Late & NSF Fees – If your payment is late, incomplete or you have insufficient funds in your bank account when the lender automatically debits the payment from it, you could receive a hefty penalty, as well as interest added to your debt.
- Membership Fees – To apply for an unsecured personal loan through a bank or credit union, you may have to become a regular member, which can result in monthly or yearly account fees, security deposits and other small costs.
Looking For a Large Unsecured Personal Loan?
Whether you have good or bad credit, there’s sure to be a lender that can approve you for an unsecured personal loan in Canada. However, you might need good credit to qualify for a large loan amount and a decent interest rate. Luckily, Loans Canada can help you improve your credit and find the right lenders in your area.
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