Can You Get a Home Equity Loan With Bad Credit?

A low credit score doesn't mean you're locked out of your home equity. In fact, one of the biggest advantages of home equity loans in Canada is that they're secured by your property — which means lenders focus on the equity itself, not just your credit score.

If you have significant equity but a bruised credit history, there are real options available to you. Here's what to expect.

Why Home Equity Loans Are Accessible With Bad Credit

Unlike unsecured loans (credit cards, personal loans) where lenders rely almost entirely on your creditworthiness, home equity loans are secured by your property. If you default, the lender can recover their money by selling your home.

This security means lenders are willing to work with borrowers who would be declined for unsecured products.

The key requirement shifts from credit to equity:

• Strong credit (650+): Qualify with any lender, best rates
• Fair credit (550–649): B-lender options available
• Poor credit (below 550): Private lender options, equity-focused
• Very poor credit or recent bankruptcy: Private lenders, higher equity required

Your Options by Credit Score

Credit Score 600–649: B-Lender Territory

B-lenders like Equitable Bank, Home Trust, and MCAP serve borrowers who don't quite meet bank standards.

What to expect:

• Rates: 7.99% – 9.99%
• LTV: Up to 80–85%
• Income verification still required (may be flexible)
• 1–3 year terms common
• Some may require an exit strategy (plan to refinance to A-lender)

Credit Score 500–599: Private Lender Options

Private lenders focus primarily on your equity position, not your credit score.

What to expect:

• Rates: 8.99% – 12.99%
• LTV: Up to 75–85% (lower LTV = lower rate)
• Minimal income verification
• Lender fees: 1–3% of the loan amount
• Terms: Usually 1–2 years (designed as short-term bridge)

Below 500 or Recent Bankruptcy/Proposal

Even with very poor credit or a recent consumer proposal/bankruptcy, home equity loans remain possible.

What to expect:

• Rates: 10.99% – 14.99%
• LTV: Usually capped at 65–75%
• Higher lender fees (2–4%)
• Shorter terms (6 months – 1 year)
• Strong focus on equity and property condition

Common Reasons for Bad Credit — And How Lenders View Them

How to Improve Your Chances

Build Your Equity

The more equity you have, the more comfortable lenders are. If you're at 50% LTV or below, even private lenders will offer competitive rates.

Provide an Exit Strategy

Show lenders your plan: "I'll use this loan to pay off collections, improve my credit score, and refinance to a bank within 18 months." This demonstrates responsibility and makes approval more likely.

Work With a Mortgage Broker

A broker who specializes in bruised credit knows which lenders are most likely to approve your application — and can present your case in the strongest light.

Consider a Co-Signer

A co-signer with strong credit can help you access better rates. They're taking on risk, so ensure they understand the commitment.

The Cost of Waiting vs. Acting Now

Many people with bad credit avoid borrowing because they're embarrassed or assume they can't qualify. But there's an opportunity cost to waiting:

Example: $30,000 in credit card debt at 21%

• Monthly interest alone: $525
• Annual interest: $6,300

After consolidating with home equity loan at 10%:

• Monthly interest: $250
• Annual interest: $3,000
• Annual savings: $3,300 — even with a "high" rate

In many cases, the "expensive" home equity loan saves you thousands compared to doing nothing.

Bad Credit Isn't Permanent

A home equity loan can be the first step toward rebuilding your financial health. Use it to eliminate high-interest debt, rebuild your credit score, and position yourself to refinance into better terms within 1–2 years.

The worst thing you can do is nothing — letting high-interest debt compound while your credit continues to suffer.

Read our complete guide to home equity loans in Canada