5 financing options if you have Bad Credit

Experiencing credit issues isn’t something uncommon, especially in pandemic conditions. A substantial percentage of the Canadian population encounters bad credit scores due to illness, recession, family issues, bankruptcy, etc. 

Getting your financial situation back on track and improving your credit score might take time. Meanwhile, you’ll need to pause your life plan involving considerable financial expenditure such as buying a home, getting an educational degree, or even paying off debts.  

However, with bad credit financing options, you can take the plunge. You can get your secondary house, additional educational qualifications or pay off high-interest debts to improve your credit score. A home equity loan is one such credit option! You can visit this link to learn more about home equity loans.

But before we discuss the various options for financing your home, let’s understand the dynamics of the credit score system and bad credit. 

What’s a credit score and a bad credit loan?

A credit score helps the creditors/lenders understand how you were dealing with your credit allowances and loans in the past. In Canada, generally, two premier credit bureaus, Equifax or TransUnion, designate the credit scores between 300-900 and issue credit reports. 

A higher credit score indicates your financial stability to repay a loan in time and is beneficial for securing low-interest financing. 300-574 is considered a bad credit score. Your credit score evaluation is based on the below parameters:

  • Payment history (35%)
  • Credit utilization (30%)
  • Credit history (15%)
  • Credit mix (10%)
  • Credit inquiries/credit checks (10%)

Bad credit loan

A bad credit loan can be defined as financing being offered by a credit institution despite the applicant having a bad credit score. Typically, bad credit loans that have high-interest rates might require a co-signer or a substantial down payment. 

However, there’s an upside to securing a bad credit loan. When managed correctly, the loan can help you improve your credit score and empower you to fulfill your financial goals. It might be the backing you require to get your finances back on track (improving your business, securing a better job with a higher qualification, renovating your property for better rental returns, etc.).

If your credit score is below 575, you can find private lenders or mortgage brokers specializing in offering bad credit loan plans.

5 financing options if you have bad credit

financing options if you have bad credit

Various types of bad credit loans are available. Choose the type of loan that best suits your requirement. The amount of interest and the repayment flexibility you receive varies from lender to lender and the type of loan you choose.  

Secured and unsecured personal loans

Conventional personal loans can be secured or unsecured. With secured loans, you’ll need to provide a valuable asset to the lender as collateral. This collateral serves as a security to the lender during the repayment period. 

A cash deposit, savings bank account, real-estate property, car, or jewelry can serve as the collateral. Since collateral assures security, these loans generally have lower interest rates. 

Unsecured loans, however, don’t involve collateral. These loans don’t have a backup security assurance, thus posing a greater risk to the lenders. Consequently, they have stricter qualification criteria, documentation, and higher interest rates. You might also require a co-signer and a large down payment. 

Home equity loans

A home equity loan is a secured loan where you receive a loan amount depending on your home’s equity. Home equity is calculated by deducting any sum you owe on your mortgage from the current market value of your home.

Since your home is provided as collateral, financial institutions offer these loans even to people with bad credit scores.

Certain parameters are evaluated for providing a home equity loan, including your debt-to-income ratio and home appraisal value. Some financial institutions might even require a credit check. 

The Financial Consumer Agency of Canada regulates the limit of the borrowing amount. Currently, you can’t procure any loan amounting to greater than 80% of your home’s current value. You can use the amount to repay your debts, support your business, purchase a secondary property, renovate your existing property or pay medical expenses. 

Bad credit vehicle loans

A vehicle loan is another type of secured loan that considers your vehicle as collateral. If you’re unable to make the payment, the lender can be within their legal rights to acquire your vehicle. 

Since this is a secured loan, you might secure a substantial amount without a higher interest rate. While a higher credit score always offers a better deal, you can still qualify for receiving a bad credit vehicle loan as long as you fulfill the debt-to-income ratio requirements. 

Bad credit student loans

Under the Canada Student Loans Program, the Canadian Government pays the interest on your student loan during your academic course (both full-time or part-time). To receive the interest-free benefits, you must confirm your student identity at each Canadian academic year-end.

The repayment will start after six months of completing your educational program. You’ll need to pay the accumulated interest after completion of the course. The student doesn’t require a credit check for approval. Under certain adverse/special circumstances, you may be eligible for student loan forgiveness. 

Bad credit payday loans

Bad credit payday loans can be a good option if you’re looking for minimal short-term loans for quick cash requirements. With Payday loans, you can generally secure up to approximately $500. In some instances, the amount can be more. 

You’ll need to repay the loan amount once you receive your next monthly paycheck. The loan repayment tenure is usually two to four weeks after securing the loan. A bad credit payday loan might not require a credit check for qualifying. 

However, the interest rates can be sky-rocketing. These loans are generally recommended when you want to re-invest the amount in options with good long-term returns. 


Bad credit scores might stop you from fulfilling your financial goals or increase your debt burden. However, bad credit loans like home equity have proven to be one of the best secured bad credit loans. Connect with a professional financial consultant or mortgage expert to understand the best option for securing a loan. Aim for flexible terms and lower interest rates. 

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