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Unsecured loans in Canada let you borrow a lump sum of cash without having to put up collateral to secure your loan. The upside of unsecured loans is that you won’t risk losing an asset if you default on your payments. The downside is that they come with higher rates compared to secured loans.
Follow this guide to learn more about types of unsecured loans and where you can apply.
Option 1: Compare unsecured personal loans in Canada
Unsecured personal loans in Canada are large loans offered by banks, credit unions and alternative lenders. They don’t require collateral and are paid back through equal payments over a period of time.
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Overall representative example If you borrowed $20,000 over a 5-year term at 9.50% APR (variable), you would make 60 monthly payments of $420.04 and pay $25,202.23 overall, which includes interest of $5,202.23. The overall cost for comparison is 9.50% APR representative.
Features of unsecured personal loans in Canada
Who are they for? These loans are best for people with good credit scores above 660, who need to borrow large amounts of money in a few days to weeks.
Loan term. 6–60 months
Loan amount. $500–$50,000+
Interest rates. 9.75%–46.96%
Fees. NSF fees and late payment fees
Minimum credit score. Usually 600+
Turnaround time. 2 days to 3 weeks
Option 2: Compare installment loans
Installment loans are a type of unsecured personal loan offered by alternative lenders. They are specifically designed for people with fair to bad credit. This means they have smaller loan amounts, higher interest rates and easier eligibility criteria than regular unsecured personal loans. Installment loans don’t require collateral, and they are paid back in installments.
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Features of unsecured installment loans
Who are they for? These loans are for people who need to borrow quickly and don’t qualify for personal loans at lower rates.
Loan term. 3–60 months
Loan amount. $500–$10,000
Interest rates. 18%–46.96%
Fees. NSF fees and late payment fees
Minimum credit score. Usually 500+
Turnaround time. 1-2 business days
Option 3: Compare unsecured payday loans
⚠️ Warning: Be cautious with payday loans
High-cost payday loans are unsustainable for borrowing over a continued period of time and are expensive as a means of longer-term borrowing. If you're experiencing financial hardship call Credit Counselling Canada for free financial counselling (Monday-Friday 8:00am-5:00pm at +1 866-398-5999). You may also want to consider payday loan alternatives.
Payday loans are very small loans that are offered exclusively by payday lenders. They are always unsecured. You’ll typically need to repay these loans in full by your next paycheque. These loans are easier and faster to get than unsecured personal loans. However, they come with extremely high interest rates and are often considered predatory, so they should only be a last resort.
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Maximum borrowing costs of payday loans per province
Always refer to your contract for exact repayment amounts and costs as they may vary from our results.
Province
Maximum allowable cost of borrowing
Alberta, British Columbia, New Brunswick, Ontario & Prince Edward Island
$15 per $100 borrowed
Manitoba, Saskatchewan & Nova Scotia
$17 per $100 borrowed
Newfoundland and Labrador
$14 per $100 borrowed
Quebec
Limit of 35% annual interest rate (AIR)
Features of payday loans
Who are they for? They are for people who have bad credit and need to borrow money fast. Before getting a payday loan, make sure you can repay your loan by your next payday and you’ll have enough money left to pay for other debts and expenses.
Loan term. Usually 2-3 weeks (up to 62 days)
Loan amount. $1,500 or less
Interest rates. Between $14 to $17 for every $100 borrowed, which can be equivalent to an incredibly steep APR of 400%-800%
Fees. NSF fees and late payment fees
Credit score requirements. No minimum credit score
Turnaround time. Under 24 hours, often within an hour
What is an unsecured loan?
An unsecured loan is a debt that is not backed with collateral. While secured loans are usually backed by the house or car the loan is financing, an unsecured loan is not backed with any asset from the borrower.
Unsecured loans in Canada typically come with higher interest rates compared to secured loans. That’s because these types of loans are more risky for lenders, since they cannot sell the collateral to recover lost revenue should you default on the loan.
What is the interest rate for an unsecured loan?
Interest rates for unsecured loans vary depending on the following factors:
Credit score. Borrowers with good to excellent credit scores (above 660) will get lower rates than borrowers with fair to bad credit scores (below 660).
Loan amount. How much you decide to borrow will influence your rates. The more you borrow, the more interest you’ll pay over time.
Loan term. You may pay higher interest rates on shorter term loans, but you’ll pay more interest overall on longer term loans.
You’ll usually pay higher interest rates for unsecured loans vs secured loans. This is because your lender takes on more risk to give you funding since it won’t be able to sell your assets if you default on your payments.
Interest rate vs APR (annual percentage rate): What’s the difference?
As you search for unsecured loans in Canada, you may encounter these two terms. The interest rate is the percentage the lender charges you for borrowing money. When you make your monthly payments, a portion will go towards the amount you borrowed and the other portion will go toward interest. APR is the interest rate plus other fees you must pay to get the loan, such as origination or set-up fees (around 0-5%), expressed as an annual cost.
How do unsecured loans compare?
When you compare the APRs of the 3 types of unsecured loans, you’ll find that payday loans are the most expensive.
Unsecured personal loans: 9.75%–46.96%
Unsecured installment loans: 18%–47%
Unsecured payday loans: 400%-800%
Sample of how much you’ll pay for an unsecured personal loan with various interest rates
See how the overall cost of a $20,000 loan over 5 years will fluctuate based on your interest rates:
Features
Loan 1
Loan 2
Loan 3
Total amount
$20,000
$20,000
$20,000
Interest rate
6%
9%
12%
Fees
$0
$0
$0
Monthly payment
$386
$415
$444
Total interest over time
$3,199
$4,910
$6,693
Total repayment
$23,199
$24,910
$26,693
Calculate your unsecured loan monthly payment
Calculate how much you could expect to pay each month on an unsecured loan
Are there unsecured loans for bad credit in Canada?
It is possible to get unsecured loans for bad credit in Canada if your credit score falls below 660. You’ll usually be eligible for unsecured installment loans and payday loans for bad credit, but expect to pay very high interest rates.
Many financial institutions in Canada offer unsecured loans including banks, online lenders and brokers. Online lenders tend to have more lenient eligibility requirements, such as a lower minimum credit score threshold, compared to banks.
Alternatively, when you apply with a broker, you’ll fill in one online application, and then be matched with a number of loans you qualify for from different lenders. You can then conveniently compare multiple loan offers at once.
Some example Canadian loan brokers offering unsecured loans are Loans Canada and LoanConnect.
Can I get an unsecured bank loan?
You may qualify for an unsecured bank loan if you have good to excellent credit, or a score above 660. It will be much more difficult to get a bank loan with bad credit.
How do unsecured bank loans work? Apply online or in person. Book an appointment to discuss your loan requirements and submit required documents such as 2 valid pieces of ID, recent pay stubs, most recent T4, personal tax return and list of assets and liabilities. Agree to a credit check.
Types of unsecured bank loans. Unsecured personal loans, lines of credit, debt consolidation loans, credit cards.
Which banks offer unsecured loans? Unsecured loans are a common product, and you’ll easily find them among the Big Five and other major banks. You may want to check with your current bank first and see if they can offer you a relationship discount.
Fixed vs variable rate loans
If you apply for an unsecured personal loans from a bank or credit union, you’ll get a choice between fixed and variable rates:
Fixed rate loans. Fixed rate loans give you a locked-in interest rate so that your monthly payments don’t change for the duration of your loan. These are the most common types of unsecured personal loans in Canada.
Variable rate loans. Variable rate loans have fluctuating interest rates that depend on market conditions. The breakdown of your monthly payments will vary as your interest rate shifts. If your rate goes up, more of your payment will go toward interest than towards the principal of your loan.
Pros and cons of unsecured loans
Pros
Simple application. Apply for an unsecured loan online in less than 5 minutes. Simply fill out your personal details and submit to a credit check.
No assets required. There’s no need to secure your loan with collateral or risk losing an asset if you default on your payments.
Flexible loan amounts. Qualify for more money with an unsecured loan since the amount you borrow won’t depend on the value of your assets.
Use funds for whatever you want. Spend the money you borrow on whatever you want – you don’t need to share this information with your lender.
Cons
Higher interest rates. Unsecured loans come with higher interest rates than secured loans since your lender can’t repossess your assets to cover losses if you default.
Difficult to qualify with bad credit. You may have a harder time qualifying for an unsecured loan if you have bad credit (except for payday loans).
Damage to credit score if you default. Your credit score will go down by a significant margin if you don’t make your payments on time.
How to compare unsecured loans in Canada
Loan amounts. Many lenders cap unsecured loans at $35,000 to $50,000. That said, some lenders may allow you to borrow more depending on your credit score, income and debt-to-asset ratio.
Interest rates. Compare providers to make sure you lock in competitive rates, and check the annual percentage rate (APR) of your unsecured loan to get a better idea of how much it will cost.
Loan terms. Most loan terms range from 6 to 6 months. Shorter terms come with larger payments while longer terms give you smaller payments (but you’ll pay more in interest over time).
Fees. Fees for unsecured loans can include application and origination fees as well as any ongoing annual or monthly fees. Double check the fee schedule for your loan before you sign up. Learn more about unsecured loan fees.
Repayment flexibility. You may have to pay extra fees to pay your loan off early with some lenders. Aim to choose a lender that will let you prepay your loan for free wherever possible.
Eligibility criteria. Many lenders have specific criteria such as a minimum income or credit score that you need to meet to qualify. Make sure you’re eligible for the loan you’re interested in before you take the time to apply.
How to apply for an unsecured loan
Learn more about how to apply and qualify for unsecured loans in Canada:
Steps to apply for an unsecured loan
Apply in person or online. Apply for an unsecured loan by visiting the physical location or website of the provider you’re interested in.
Fill out application details. Fill out personal details such as your full name, address, email and phone number to start your application.
Provide financial details. Input details about your income, debts, assets and other necessary financial information.
Provide employment information. Provide the name of your employer, your job title, length of service and annual gross income.
Submit to a credit check. Give permission for your lender to check your credit to determine your loan eligibility and interest rates.
Review final details and submit. Check your amount, rates, repayment term and fees. Provide required loan documents and submit your application.
Eligibility requirements for an unsecured loan
To qualify for an unsecured loan, you may need to meet the following eligibility requirements:
Age of majority. Be at least 18 years old or the age of majority in your province or territory.
Resident or citizen. Be a Canadian citizen or a permanent resident with a valid Canadian address and 2 pieces of identification.
Proof of income and employment. Make the minimum income specified by your lender (usually over $1,200 per month) and show proof of long-term employment.
Decent credit score. Submit to a credit check and meet credit score requirements (usually a score of 600 or higher is required for many loans).
Working bank account. Submit direct deposit information so you can receive payment and organize withdrawals to repay your loan.
What documents do you need to apply for an unsecured loan?
You may need to submit the following documents to apply for unsecured loans.
You’ll borrow a set amount that sits in your account. Access all or a portion of it whenever you need and only repay the amount you take out, with interest.
Peer-to-peer loans let you submit an application online on a P2P network. Other Canadians can then lend you money. You’ll usually need good to excellent credit to apply.
Rates can range anywhere from 8% to 35%.
Bottom line
Unsecured loans don’t require collateral; they include personal loans, installment loans and payday loans. You need a good to excellent credit score to qualify for competitive interest rates, and your credit score will go down if you default on your payments. You’ll also have to pay higher interest rates for unsecured loans vs secured loans, especially if you have bad credit.
Frequently asked questions about unsecured loans
How much you can borrow with an unsecured personal loan will depend on your personal factors, such as your credit score, income and debt levels. You can borrow as little as $500 and as much as $50,000.
Unsecured personal loans usually max out at $50,000. However, how much you can borrow will depend on your financial situation. CIBC, for example, can offer up to $200,000 to people with high credit scores and incomes.
You may be able to get approved for a loan if you’re unemployed but have other sources of income. Some examples include Employment Insurance (EI) benefits, disability benefits, the Canada child benefit and other similar forms of supplementary assistance.
Lenders sometimes advertise the rates they charge to borrowers with excellent credit. It’s the lowest possible rate you can get but you’ll usually need a score of 700 or over to qualify. You may end up paying higher interest than the advertised rate if your credit score is lower than an excellent rating.
You can but it will likely be a payday loan for less than $1,500. You’ll have a very hard time getting approved for a larger amount with bad credit. You’ll also pay 500-600% APR for payday loans, which makes them the most expensive type of loan on the market. It’s best to steer away from any lenders promising guaranteed approval for personal or installment loans.
Claire Horwood is a writer at Finder, specializing in credit cards, loans and other financial products. She has a Bachelor of Arts in Gender Studies from the University of Victoria, and an Associate’s Degree in Science from Camosun College. Much of Claire’s coursework has focused on writing and statistics, with a healthy dose of social and cultural analysis mixed in for good measure. In her spare time, Claire enjoys rock climbing, travelling and drinking inordinate amounts of coffee.
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