Alternatives to Unsecured Loans for People with Bad Credit

If you're in Canada and your bank or credit union has declined your application for an unsecured loan because you have bad credit, you may have some other options that can put an end to your debt problems, rebuild your credit rating, and put your finances back on the right track.

The first question you need to ask yourself right now is "Why?" Why do you really need to get this loan? What's pushing you in this direction? Take a minute to click on your answer below and find out if some better choices may be available to you.

  1. You're dealing with an emergency. Your vehicle has broken down, your dog needs to see the vet, you've been hit with a large dentist bill, you need to buy a plane ticket to go and see a sick relative, or some other urgent situation like this.
  2. You want to repair and re-establish your credit and increase your credit score.
  3. You'd really like to have a single loan with only one monthly payment. You're looking for a lower monthly payment you can afford, and/or your current interest rates are just too high.

1. Urgently Need Some Money for an Emergency

If you really need some money right now to deal with an actual emergency because you haven't saved anything to handle emergencies, then you might need to continue on with your search and see if you can find a loan company that is able to help you. You should know, though, that if you have bad credit, you'll likely be looking at an unsecured loan interest rate of close to 47%. However, you might be able to qualify for something better if your credit doesn't look too bad. Learn more, find out how to keep from getting ripped off, and see some other ideas.

2. Trying to Rebuild or Improve Your Credit Rating or Score

Someone may have told you to apply for a personal loan to improve your credit score. While a loan may help in the long term, at this point it’s not about saving your credit anymore. Right now it’s about rebuilding your credit. To do this, your best first step would be to contact a non-profit Credit Counsellor in your area.

A Credit Counsellor will sit down with you (either in person or over the phone – it’s your choice), go over your complete financial picture, answer some of your credit related questions, and help you put together an action plan to re-establish your credit. You'll know which steps to take so that you can reach your financial goals. Meeting with a non-profit Credit Counsellor is usually free and always completely confidential.

You can also take steps to improve your credit by following the suggestions in our How to Fix Your Credit Guide.

3. Need One Affordable Monthly Payment

Before we go further, there are some more questions you need to honestly ask yourself. Is a loan truly the best thing for your situation? Is it really what you need, and will it actually help? Are you dealing with your situation, or are you just extending the pain? Is it possible that a loan will only be a short term solution to a longer term problem that’s been brewing? Have you considered the possibility that a bad credit loan could increase your cost of living, put you further behind the eight ball with high interest payments you can barely afford, and hurt you?

Don't be too quick to enter into anything that may ultimately harm you and potentially cause more harm than good. It's important to know all your options. The best thing you can do is get advice from someone who really knows how to effectively deal with bad credit. Ideally, someone who isn't interest in making money off you with a loan.

It's really important that you deal with the underlying issue that's resulting in financial problems. Find the cure. Don't just extend your suffering.

As your first step, you should go and see a non-profit Credit Counsellor near you. They'll go over your whole financial picture with you, help you put together a budget, and help you work out your best options to set your finances back on the right track. With situations like this, we find that one size does not fit all. Each situation is unique and needs to be worked through based on the unique circumstances. That's why it's so helpful to spend some time with an expert to work through your situation and discover what options are available to you.

Another Option for People with Bad Credit to Get Something Like an Unsecured Personal Loan

Although there are a lot of different ways to work with people with bad credit to resolve the challenges they're experiencing, one really good option that a lot of Canadians aren't aware of is a Debt Management Program.

If you decide you would like to put your debt onto a Debt Management Program, the credit counselling organization you're working with will communicate with your creditors and make arrangements for your unsecured debts to be placed on the repayment plan (while it's not actually a personal consolidation loan, it essentially achieves the same sort of thing). All of your payments on these debts are brought together into a single affordable monthly payment, and the interest you were paying is either removed or dramatically cut back. If you also have any secured debt, your Credit Counsellor will incorporate any payments for that debt into your program so that you'll be able to afford your payments every month.

A typical program lasts around 2.5 years (the longest it can go for is 5 years), and the credit counselling organization can assist you with re-establishing your credit once you have completed the program. Some of these organizations even have a credit rebuilding program built into the final part of their repayment program if you want to use it.

What You Can Do If You're Having a Difficult Time with Debt in Canada

If you’re having a hard time with your personal debt and could use some help, don’t making things more painful by prolonging the pain with an unsecured bad credit loan. Take the time today to speak with a good non-profit credit counselling agency, find out what you don't know, and use their help to put together a plan to get your finances back on the right track. Another great thing about non-profits like this is that they typically help people for no charge, and their assistance is completely private and non-judgmental. You really have nothing to lose by speaking to a Credit Counsellor. Their job is simply to help and assist you. Find one near you.