Loans for Bad Credit: How to get one?

In Canada, a poor credit score often acts as a barrier that prevents you from accessing traditional loans from banks and major lenders.

But here's the good news: having bad credit doesn't mean you're completely out of options.

This guide will walk you through everything you need to know about getting a loan when your credit isn't perfect.

Loan alternatives for people with bad credit

Sometimes taking on new debt isn't the best solution, especially if you're already struggling with bad credit.

Consider these alternatives before committing to a high-interest loan:

KOHO Cover

Get a cash advance of up to $250 in Canada

Coming up a bit short? We’ll help get you back on track. Cover gets you access to an instant, interest-free cash advance. To get the cash advance, simply subscribe to the Cover bundle¹—you also get a free credit report, financial coaching, and faster customer support.

Buy Now, Pay Later (BNPL) Services

For specific purchases, BNPL options might let you spread payments over time without a traditional credit check.

Government and Community Support Programs

Depending on your situation, you might qualify for government assistance programs or community-based financial support. These options often come with much better terms than commercial loans.

Family and Friends

While it can be awkward, borrowing from people you know can help you avoid high interest rates and strict terms. Just make sure to treat it professionally with a written agreement and repayment schedule.

Side Income

Instead of borrowing, consider whether you can generate additional income through freelance work, selling items you no longer need, or taking on temporary employment.

Can you get a loan with bad credit or no credit check?

Yes, you can get a loan even with bad credit, though your options will be different from what's available to people with excellent credit scores.

Several types of lenders and loan products are specifically designed for people in your situation:

Credit Builder Loans

Build your credit without a credit card

With Credit Building, KOHO members have seen their credit scores go up by an average of 31+ points in just 4 months².

Secured Loans

With these loans, you put up collateral (like a car or savings account) to reduce the lender's risk. Because you're offering security, lenders are more willing to work with you despite bad credit.

Credit Union Loans

Credit unions are member-owned financial institutions that often have more flexible lending criteria than big banks. They may consider your whole financial picture, not just your credit score.

Online Alternative Lenders

Many online lending platforms specialize in working with people who have been turned down by traditional banks. They often have faster approval processes but may charge higher interest rates.

Payday Loan Alternatives

While traditional payday loans can trap you in expensive debt cycles, some organizations offer safer short-term lending options with more reasonable terms.

It's worth noting that while "no credit check" loans exist, they often come with extremely high interest rates and fees.

How to improve your approval odds

Even with bad credit, there are several strategies you can use to increase your chances of getting approved for a loan:

Provide Collateral: Offering something valuable as security (like a vehicle, savings account, or other asset) dramatically reduces the lender's risk and improves your approval chances. Just make sure you can afford the payments, as you could lose the collateral if you default.

Find a Co-signer: Having someone with good credit co-sign your loan essentially lets you borrow against their creditworthiness. Keep in mind that your co-signer becomes responsible for the debt if you can't pay, so this is a big responsibility to ask of someone.

Pay Down Existing Debt: Before applying, try to pay down credit cards and other debts as much as possible. This improves your debt-to-income ratio and shows lenders you're serious about managing your finances.

Show Stable Income: Gather documentation proving you have steady employment and income. This might include pay stubs, bank statements, or tax returns. Lenders want to see that you have the means to repay the loan.

Apply for Smaller Amounts: Don't ask for more than you truly need. Smaller loan amounts are easier to get approved and easier to repay, which can help rebuild your credit for future borrowing needs.

Shop Around Carefully: Different lenders have different criteria. Just because one says no doesn't mean they all will. However, avoid applying to many lenders at once, as multiple credit inquiries can further damage your score.

Why traditional banks have failed Canadians with bad credit

Canadian banks operate on outdated risk models that paint anyone with bad credit as financially irresponsible.

They ignore the reality that life happens—job loss, medical emergencies, divorce, or simply making mistakes in your twenties shouldn't define your financial future forever.

This systemic failure has created a massive opportunity for KOHO to step in and serve the underserved.

¹This is a paid bundle that provides access to a range of premium features. The fee is not tied to any single product or service. Pricing starts at $2/month. Terms and Conditions apply.

²Based on users with a starting score of 500 or less and who signed up for credit building in October 2024. Credit Building is not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.