Borrowing without collateral: how an unsecured loan is priced

What an unsecured loan is

An unsecured loan is a loan with no asset pledged against it. There is no car, no savings account and no property named as collateral, so if payments stop, the lender's main recourse is the terms of your contract and, eventually, the courts rather than an immediate right to seize a specific asset. Because the lender cannot point to something it can sell, it prices the loan for the risk it is taking on your file alone.

That pricing shows up as a spread. Two borrowers asking for the same amount over the same term can be offered very different costs, because one file shows steady income and no arrears and the other does not. Unsecured private loans, which are advanced by a private lender rather than a deposit-taking institution, follow the same logic. They are generally priced above what a mainstream lender would quote for a comparable file, because the private lender is carrying more of the risk on its own balance sheet.

loanmoose.ca is not a lender. It does not make loans, set rates or make credit decisions. It is a matching and comparison service that connects borrowers with lenders licensed to operate in their province, and the decision on whether to lend, and on what terms, rests entirely with those lenders.

Who it suits

• Borrowers who do not own a home or another asset they are willing to put up as collateral.
• People who could use secured borrowing but would rather not expose a vehicle or a property to a consumer-sized debt.
• Borrowers with a thin or damaged file, including an unsecured loan with bad credit history, where the options narrow and the cost rises but the category itself does not disappear.
• Self-employed and variable-income borrowers who can document what they earn, because income evidence carries more weight when no asset backs the loan.
• Borrowers consolidating a small number of higher-cost balances into one payment with a defined end date.
• People who want a fixed term and repayment schedule rather than a revolving limit they have to manage themselves.

What a lender checks

Four things do most of the work: income, existing payments, credit file, and the absence of security.

Income. The lender is asking whether the payment can be made without straining the rest of your obligations. Pay stubs, notices of assessment, bank statements and, for self-employed borrowers, filed business income all serve that purpose. Documented income usually carries more weight than a verbal figure.

Existing payments. Lenders compare your housing costs and other debt payments against your income using their own debt service calculation. As a reference point, federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, and qualify an uninsured mortgage at the greater of the contract rate plus two percentage points and 5.25% under OSFI Guideline B-20. Insured mortgages and provincially regulated lenders are not all subject to B-20, and unsecured lenders are not required to publish the internal ratio they use. Where a real threshold is not available to you, what decides the answer is the lender's own policy, your province's rules, and the size of the proposed payment relative to your income.

Credit file. Two national bureaus, Equifax Canada and TransUnion Canada, each hold a report on you, and a free copy of your credit report is available from each. A lender may read one or both, treating the report as a history of how you have handled obligations. Judgments, collections and insolvency records sit there too: a consumer proposal stays on a credit report for three years after completion or six years from filing, whichever comes first, and a first bankruptcy stays for six years after discharge. A recent insolvency record usually narrows the field, though it does not automatically end it.

Security. By definition there is none to register, so the file does the work that collateral would otherwise do. Licensing matters as well. Lending in Canada is licensed provincially, so the regulator and the rules differ by province and territory, and you can confirm that the lender you are dealing with is licensed where you live.

What it costs to carry

The rate on the page is one component of the cost, not the whole of it. Four lines typically decide what you actually pay.

Interest. Interest is charged on the outstanding balance, and that balance falls as you pay. The total interest you pay depends on the rate, the length of the term, and how quickly the principal comes down. A longer term at the same rate usually costs more in total even though the monthly payment is smaller.

Fees. An origination or administration fee, a setup fee, or a broker fee paid to an intermediary. Fees are sometimes deducted from the amount advanced rather than paid separately, which means the money you receive is less than the amount you owe.

Insurance. Creditor insurance or a similar product may be offered alongside the loan, sometimes presented as part of the package. It is a separate cost and is often optional. Ask directly whether the payment you have been quoted includes it.

The gap between the headline rate and the total cost of borrowing. Total cost of borrowing is everything you pay for the money: interest plus fees plus any insurance, measured against the amount advanced and the time you hold it. A loan with a lower advertised rate and a substantial fee can cost more than a loan with a higher rate and no fee. Canadian law does mark an outer boundary, in that the Criminal Code criminal rate of interest is 35% per year under section 347. That boundary tells you what is prohibited; it does not tell you what is reasonable for your file, and loanmoose.ca does not set rates or decide what you are charged.

How it compares with the alternatives

Option	When it fits	What to watch
Unsecured loan	You want a set amount, a set term and a set payment, and you have no asset you want to pledge.	The price reflects your file alone, so the same amount can be quoted very differently between lenders. Compare total cost of borrowing, not the headline rate.
Secured borrowing, including a home equity line of credit	You own property or another asset and are willing to put it at risk in exchange for a lower cost of borrowing.	At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%. The asset is exposed if you default.
Revolving credit such as a credit card or line of credit	The expense is small and short-lived and you can clear the balance quickly.	A minimum payment stretches the balance out, cost accrues while it is outstanding, and there is no fixed end date.
Payday loan	A very short gap, generally up to $1,500 for a term of 62 days or less, in a province that licenses the model.	Where a province operates a licensed payday lending regime, the federal Payday Lending Regulations cap the cost of borrowing at $14 per $100 advanced. Some provinces set a cap lower than $14 per $100, and the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there.
Consumer proposal or bankruptcy	Debts have become unmanageable and a formal restructuring is the realistic path.	Only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy, and trustees are regulated by the Office of the Superintendent of Bankruptcy Canada. Both leave a record on your credit report for years.

Before you sign

1. Confirm the lender is licensed in your province. Lending is licensed provincially, so the regulator and the rules differ by province and territory.
2. Ask for the total cost of borrowing in writing, not just the rate: interest, every fee, and whether insurance is included or optional.
3. Pull your credit report from both Equifax Canada and TransUnion Canada, where a free copy is available from each, and check it for errors before a lender reads it.
4. Test the payment against your own budget, including existing obligations. An approval is a decision by the lender, not a statement that the payment fits your month.
5. Read the prepayment, late payment and default terms, and know where a complaint goes. Consumer complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada, while provinces license and supervise most other lenders.