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More About Getting an Unsecured Loan in Canada
- What is an unsecured loan?
- Who offers unsecured loans?
- Forms of Unsecured Loans
- How to qualify for an Unsecured Loan?
- Consequences of Defaulting on Unsecured Loans
- Benefits of Unsecured Loans
- Limitations of Unsecured Loans
- What Are Popular Types of Unsecured Loans
- What Are Unsecured Loans Used For?
- Frequently Asked Questions
What Is an Unsecured Loan?
Unsecured loans represent a financial solution predominantly driven by the borrower's credit profile, as opposed to requiring collateral such as a property or vehicle. Both businesses and Canadian citizens can avail these loans, which depend solely on the borrower's creditworthiness for the loan's approval. Once the credit check is completed, the funds are transferred without needing to secure the loan with tangible assets like home equity or car title loans.
However, these loans' terms, including the interest rate and the repayment period, are significantly influenced by the borrower's credit score. A high credit score often translates into more favourable loan terms, including lower interest rates, thus reducing the monthly payments. On the other hand, a lower credit score could inflate the interest rates as lenders seek to offset the heightened risk.
Who Offers Unsecured Loans?
These types of loans in Canada can be obtained from a variety of lenders, including big banks and digital, FinTech lenders and private lenders. Many providers can be found online. However it is important to do your due diligence and ensure that you are dealing with a reputable provider and avoid any surprises when it comes to fees and interest rates.
Forms of Unsecured Loans
These come in a variety of types, tailored to accommodate diverse financial situations, lending purposes, and borrower requirements. While these loans are typically smaller than secured loans, they offer flexibility through different forms, particularly for borrowers with high credit scores.
Unsecured Revolving Loans
personal line of creditUnsecured Term Loans
Unsecured Debt Consolidation Loans
payday loansHow to Qualify for an Unsecured Loan?
Qualifying for an unsecured loan, whether it's an unsecured personal loan or a line of credit, typically requires demonstrating to lenders a solid financial profile. Lenders consider several factors when assessing a potential borrower's creditworthiness, primarily focusing on credit history, consistent income, and occasionally, the availability of a co-signer.
Qualification Considerations
Your credit history is a key element that lenders scrutinize when processing your application. It provides insight into your past borrowing behavior, revealing patterns of spending and repayment. A credit history reflecting diligent, timely repayments and managed debt contributes to a higher credit score, making you an appealing candidate for unsecured personal loans. However, if your credit score is low or non-existent, don't despair. There are ways to improve or build your credit over time, such as consistently paying bills and loans on time, even if they're small payday loans or car payments.
While your credit score is crucial, your income stability is equally, if not more, significant. Lenders need to ascertain that you have a reliable income stream that ensures you can meet your loan payments after covering your everyday expenses. If you're able to demonstrate a steady paycheck and sufficient surplus to service your loan, you'll strengthen your chances of loan approval.
In certain circumstances, particularly if your credit score is low or if you lack a regular income, lenders might require a co-signer as a safety net. This is a person who agrees to repay the money you borrowed if you default. Having someone with a good credit score can make it easier for you to qualify for a personal loan, even if you have bad credit. This option, however, should be considered carefully due to the potential financial and relationship strain it could cause.
Consequences of Defaulting on Unsecured Loans
Unlike secured loans where the lender has the right to take possession of the pledged assets to recover their losses, unsecured personal loans don't provide lenders with the same security. However, defaulting on an unsecured personal loan doesn't mean the borrower is off the hook. Lenders have various methods to recover their losses.
Wage Garnishment
Placing a Lien on Assets
Government of Canada.Benefits of Unsecured Loans
Unsecured loans, whether in the form of personal loans, lines of credit, or payday loans, come with a unique array of benefits for borrowers, particularly those in need of smaller to medium-sized loans. The advantages include:
Non-RecourseOne of the most attractive features of unsecured loans is their non-recourse nature. Since these types of loans don't require collateral, borrowers aren't at risk of forfeiting personal assets if they fail to meet loan repayments on time. However, as previously highlighted, other legal avenues may be used by lenders to recover the debt, especially if the matter escalates to court.
No Collateral RequirementUnsecured loans are particularly beneficial for borrowers who do not possess any tangible assets to offer as collateral. This aspect expands access to credit for a larger pool of borrowers, enabling them to secure funding for their needs. It's a boon for people who might not own significant assets, yet require financial assistance.
Potential Discharge in Bankruptcy
Accessible for Those with Bad CreditFlexibility in RepaymentsAvailability to Non-Property OwnersLimitations of Unsecured Loans
Higher Interest Rates
Strict Qualification Criteria
Impact on Credit Score
credit scorePotential for Higher Overall Costs
Reduced Borrowing Amounts
What Are Popular Types of Unsecured Loans?
There are a multitude of unsecured loan types in our day-to-day environment as well. Some of the cases where debt is provided without any asset backing are as follows: student loans, credit cards, personal lines of credit, payday loan, personal installment loans, and working capital loans for small business.
What Are Unsecured Loans Used For?
These loans tend to have a good interest rate and be pretty versatile in the sense that they can be used for a range of purposes. Unlike some types of secured loans such as a mortgage or auto loan, which can be solely used to buy properties and cars respectively, unsecured loans can be used for purposes such as: consolidating debt, obtaining a payday loan, getting a line of credit, medical expenses, car repairs, starting a new venture or investing into a business, wedding or vacation, big ticket purchases and much more.
Frequently Asked Questions (FAQs)
What Documents Are Needed for Personal Unsecured Loans?
How Much Can I Borrow with an Unsecured Loan?
What Kind of Fees Do Unsecured Loans Come with?
Is There a Particular Credit Score Threshold I Need to Meet to Qualify for a Loan?
Can I Qualify for an Unsecured Personal Loan with Bad Credit?
unsecured bad credit loanshome equity loan car title loanWhat's the Difference Between an Unsecured and Secured Personal Loan?
Expert Review & Editorial Standards
This page was researched, written, and reviewed by financial professionals with expertise in Canadian lending regulations. All information is regularly updated to reflect current rates, terms, and regulatory changes.
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Every page undergoes research, expert writing, fact-checking, and review by our Financial Content Director. We verify all rates, terms, and regulatory information against official sources including FCAC guidelines and provincial lending regulations.
Last Updated: November 11, 2025 | Next Review: Ongoing monitoring
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