Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

When it comes to financing options in Canada, unsecured loans are arguably the most popular. And for good reason. Unsecured loans require no collateral, which means you aren’t risking a valuable asset. On the other hand credit score requirements and other eligibility criteria can be more strict.

Whether you need to consolidate consumer debt or pay for an unexpected expense. An unsecured personal loan is a versatile option.

What Is An Unsecured Loan? 

An unsecured loan is a type of financing where no collateral is required to obtain the funds. Collateral, also known as security, is anything of significant value that can be used by the lender to cover the owed amount in the event that the borrower defaults. Because the lender is taking on more risk by not taking any collateral, the borrower tends to pay higher interest and be approved for a lower principal amount.  

Unsecured loans can be obtained by both individuals and corporations. Once the borrower is approved for unsecured financing, they will obtain a lump sum amount upfront. After the funds are received, the borrower must make regular, scheduled payments, plus interest, to repay the borrowed amount.

What Can You Use An Unsecured Loan For? 

Unsecured financing is a popular financing option for Canadians because it can be used for a wide variety of purposes. Businesses can use unsecured financing for inventory purchases, renovations and expansions. Individuals can use unsecured financing to pay unexpected expenses, make home improvements, or consolidate debt. Keep in mind that these are simply common uses for unsecured financing, the options are virtually endless!

Borrow Up To $50,000

$
100% FREE. NO OBLIGATION.

Forms Of Unsecured Loans

Unsecured loans come in different shapes and sizes. Each form has a unique feature, purpose and functionality. The three main forms of unsecured loans are listed below. 

Debt Consolidation Loan

This type of loan allows individuals to consolidate various debts into one single loan. For example, if you have multiple credit cards with high interest and overdue utility bills, you can combine them using a consolidation loan. The loan is used to pay off the outstanding debts, then the borrower is responsible for repaying the consolidation loan. The advantage to the borrower is the interest rate on a consolidation loan is typically lower than other debts and they only have to worry about one monthly payment. 

Revolving Loan

A revolving loan is a flexible form of financing that allows the borrower to access money up to a specified limit. The borrower only pays interest on the amount used and can make payments to regain access to their full limit. A line of credit is the most common example of this type of financing.

Term Loan

A term loan is the most traditional form of unsecured financing. The lump sum of the loan is provided to the borrower upfront, then the borrower is responsible for making regular, scheduled payments, plus interest, to repay the debt. This is a popular financing structure for secured loans as well. 

Types Of Unsecured Loans

Unsecured financing has become more common in the modern world of financing. There are several types that have become prominent, let’s explore these below. 

  • Payday Loan. A short-term, unsecured loan that is small in amount and has high interest. 
  • Personal Loan. A basic, unsecured loan that can be used for virtually any purpose. 
  • Credit Card. A type of revolving credit whereby the cardholder can use the debt as needed and interest is only charged when the debt isn’t paid on time. 
  • Line of Credit. A type of revolving credit that allows the borrower to withdraw cash as needed. Interest is charged until the balance is completely paid off. 

Where Can I Get An Unsecured Loan? 

An unsecured loan can be obtained from almost any type of lender in Canada, from banks and credit unions to direct online lenders. Depending on what type of borrower you are and the types of features you’re looking for, you should have no trouble finding multiple loan options to meet your needs.

Can I Get An Unsecured Loan With Bad Credit? 

It is possible to obtain an unsecured loan with bad credit, however, it can be challenging. Lenders are relying on creditworthiness entirely in their approval processes. It will be difficult for them to justify lending to you if they don’t like what they see in your credit report. 

As mentioned, it is possible, just challenging. The goal is to find a lender who is willing to work with your circumstances. This can take some time, so be patient in your search. There are lenders who specialize in bad credit unsecured financing, that’s a good place to start. 

Finally, expect that lenders who are able to work with your situation will likely charge higher interest. This is to account for the additional risk they are taking on. Remember that the high interest can be temporary if you refinance the loan in a year and manage the debt responsibly.

If you’re unable to qualify for an unsecured loan, you can resort to a secured loan. If you put up collateral, you’re more likely to get approved and you’ll likely get a lower interest rate. 

Pros And Cons Of An Unsecured Loan

As with all financial products, it’s important to consider the pros and cons before making a final decision to proceed. Let’s explore the pros and cons below. 

Pros

  • Funding Possible Without Valuable Assets. Many people do not have assets with significant value which can make it challenging to find secured financing. Unsecured financing is a good alternative for these individuals. 
  • Easy Application Process. Your application can be completed online and is much simpler than traditional lending institution application processes. You will also find out if you were approved or not in under a day. 
  • Personal Assets Are Safe. In the event that the borrower cannot repay the loan on time, they will not need to give up personal assets. The lack of collateral requirements is what allows the borrower’s assets to remain safe. 

Cons

  • Small Loan Amounts. Compared to secured financing, lenders tend to lend smaller amounts. This is to decrease the risk of the borrower defaulting. 
  • Trouble With The Lender And The Law. If you default on payment, the lender could still come after you. The lender can attempt to sue you in court. If the lender is successful, they can place a lien on our personal assets to secure payment or garnish your wages.
  • Higher Interest. Lenders charge more interest on unsecured financing to account for the additional risk. This means your monthly payments and the overall cost of borrowing will be higher. 
  • Difficult To Qualify. The main requirement for unsecured financing is good credit. If you don’t have exceptional credit, good payment history or enough payment history, you might not qualify.

Best Unsecured Personal Loans In Canada

Filters
Loading...
Loans Canada
Loans Canada
Amount
Up to $50,000
Rate
Prime to 46.96%
Term
3-60 months
Fora
Fora
Amount
$1,000 - $10,000
Rate
19.69% - 46.9%
Term
Varies
Spring Financial
Spring Financial
Amount
Up to $35,000
Rate
9.99% - 46.96%
Term
9 - 78 Months
Fairstone Financial
Fairstone Financial
Amount
Up to $60,000
Rate
19.99% - 39.99%
Term
6 - 120
Bree
Bree
Amount
Up to $350
Rate
No Cost!
Term
-
Mogo Finance
Mogo Finance
Amount
Up to $3,500
Rate
9.9% - 47.72%
Term
-
easyfinancial
easyfinancial
Amount
$500 - $100,000
Rate
9.99% - 46.96%
Term
Varies
Cash Money
Cash Money
Amount
$1,500 – $10,000
Rate
Varies by province
Term
Varies
LoanMeNow
LoanMeNow
Amount
$500 - $1000+
Rate
28% to 32%
Term
3 Months
Nyble
Nyble
Amount
$150
Rate
No Cost!
Term
-
goPeer
goPeer
Amount
$1,000 - $25,000
Rate
7.5% - 31.5%
Term
36 - 60 months
Unfortunately we couldn't find you a provider with the given filters

How To Qualify For An Unsecured Loan

While it is challenging to qualify for an unsecured loan, if you know what is expected of you, it can be easier to prepare. Creditworthiness is the main thing lenders consider, however, there are other considerations too. Below are common items that lenders consider for unsecured financing approval. 

  • Credit Score. To qualify for an unsecured loan, a credit score of 650 or higher is often required. If your credit score is below 650, do your best to boost it before you apply to better your odds of approval. 
  • Source Of Income. Credit is important, but lenders will also want to know that you have cash flow available to make payments. Often, this means regular and steady income. 
  • Payment History. Lenders will definitely consider your previous payment history. How an individual has managed debt in the past is one of the best ways to determine how they will handle debt in the future. 
  • Co-Signer. Using a co-signer is not the regular process used by unsecured financing lenders, but it can help to have someone back the loan. A co-signer agrees to repay the debt if the primary borrower defaults, this can make the lender feel more comfortable about extending debt.

In addition to the above, you will also need to be the age of majority in your province or territory. When you apply, you’ll need to provide government-issued identification and documents showing your proof of income. 

Is An Unsecured Loan Right For Me?

Unsecured loans are a fantastic financial product because of their versatility and flexibility. Although, that doesn’t mean they’re right for everyone. Before making the decision to move forward with unsecured financing, take the time to assess your finances and goals. Once you do that, the decision of whether to use unsecured financing should become much clearer.

Frequently Asked Questions

How much can I borrow with an unsecured loan?

There is no universal limit, lenders vary on their maximum borrowing amounts. However, many institutions do not lend more than $50,000 and usually keep their unsecured loans between $1,000 and $10,000.

What’s better, a secured loan or an unsecured loan?

The main difference between a secured and unsecured loan is collateral. Secured loans have collateral whereas unsecured loans do not. Neither option is better than the other. The best option depends on your unique financial circumstances and goals. As a rule of thumb, secured loans are better if you have an asset of significant value because you’ll be able to secure a lower interest rate and be less fearful of repercussions if you default. On the other hand, if you don’t have a valuable asset to use as security, unsecured loans are always available. Again, these are simply basic guidelines. The option that will work best for you depends on your circumstances and goals.

What if I miss a payment on my unsecured loan?

If you miss a loan payment, do your best to remain calm and act quickly. Your first course of action should be to communicate with the lender. Explain your situation and try to work out an extended due date or a repayment plan with the lender. The longer you wait to communicate with the lender, the more likely it is that the lender will escalate the situation. Keep in mind that if you think you won’t be able to make your payment on time, contacting your lender before you miss it is the best option.

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2017/09/ported-motgage.png
Porting A Mortgage | What Does It Mean?

By Bryan Daly
Published on June 11, 2024

Everything you need to know about porting your mortgage and when it's actually a good idea.

https://loanscanada.ca/wp-content/uploads/2017/12/Deed-in-Lieu-of-Foreclosure.png
Deed In Lieu Of Foreclosure In Canada: An Alternative To Foreclosure

By Lisa Rennie

A deed in lieu of foreclosure is when you agree to voluntarily hand over the deed to your home to the lender instead of going through a foreclosure.

https://loanscanada.ca/wp-content/uploads/2013/10/Condo-vs-house.png
Pros And Cons Of Buying A House vs Buying A Condo

By Lisa Rennie

What are some of the disadvantages and advantages of buying a house or a condo?

https://loanscanada.ca/wp-content/uploads/2024/06/Moi-Program-1.png
What Is The Moi Program?

By Savanna Craig

Are you wondering if the Moi program is worth it? Find how much Moi points are worth and where you can earn them.

https://loanscanada.ca/wp-content/uploads/2012/08/monthly-costs-of-owning-a-house-ontario.png
The Costs Of Owning A Home In Ontario

By Lisa Rennie

Wondering how much it costs to own a home? Let's look beyond mortgage closing costs and analyze exactly are the monthly costs of owning a house in Ont...

https://loanscanada.ca/wp-content/uploads/2024/05/best-time-to-buy-a-house.png
When Is The Best Time To Buy A House?

By Lisa Rennie

Learn how to determine whether or not it's a good time to purchase a house.

https://loanscanada.ca/wp-content/uploads/2018/01/power-of-sale.png
What Is A Power Of Sale For A Mortgage?

By Jessica Martel

A power of sale essentially allows the lender - not the homeowner - to sell the home if the borrower defaults on the mortgage.

https://loanscanada.ca/wp-content/uploads/2021/06/BC-Disability-Assistance.png
Do You Qualify For Disability Assistance In BC?

By Matthew Taylor

The BC Disability Assistance Program provides monthly disability assistance payments to people with the Persons with Disabilities (PWD) Designation.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card