Debt Consolidation Loans

Debt Consolidation Loans in Canada

Debt consolidation loans offer a way to lower your interest rates on multiple debts by combining them into one loan. As any financial planner will tell you, one of the trickiest parts of managing your money is dealing with multiple creditors. Juggling your credit card balance, consumer debts, mortgage and more can be confusing, and chances are good you’re not getting the lowest interest rate possible.

Getting a loan to pay off your existing debts consolidates these obligations under one umbrella, allowing you to save on interest costs by locking in a favourable rate. A debt consolidation loan also means having only one creditor to deal with, which is a much less stressful arrangement for most debtors.

Smarter Loans have assembled a list of online debt consolidation loan options in Canada to help you find an arrangement that works for you.

Our debt consolidation loans comparison table makes it easy to see features of each provider, putting you that much closer to paying off your debts for good.

Click “Apply Now” once you’ve identified a debt consolidation loan provider that you would like to proceed with. Alternatively, select the pre-application with Smarter Loans and will have you connected to a suitable lender.

We can help connect you with the top debt consolidation loan providers in Canada.

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Top Debt Consolidation Loans Providers in Canada

Interest Rate
$500 - $10,000
Open Line of Credit
$10,000 and up
Varies (Home Equity Loans)
12 Months
$500 - $10,000
12.99% - 39.99%
9 - 36 Months
$500 - $15,000
29.99% - 47.72%
12 - 60 Months
$1,000 - $5,000
19.9% - 45.9%
12 - 36 months
$1,500 - $12,500
19.99% - 34.99%
12 - 60 Months
$5,000 - $50,000
Starting at 6.99% (Good Credit Only)
1 to 7 Years
$1,500 - $20,000
19.99% - 46.8%
12 - 60 Months
$5,000 - $35,000
Starting at 9.9% (Good Credit Only)
6-60 months
$500 - $15,000
18.9% - 46.93%
6 months - 5 years

Debt consolidation loans explained

In today’s environment, there are many forms of debt available to the average person. These debts can be short-term such as credit card bills, medium term such as car loans or long-term such as mortgages on residential properties. Given this range of debt that can be taken out – often simultaneously – it can sometimes get overwhelming to monitor and track the payment dates and amounts due of each debt component. To this end, one major option used by a significant number of Canadians looking to reduce their periodic payments and/or number of creditors is a debt consolidation loan.

Debt Consolidation Loans Canada

What is a debt consolidation loan?

In a nutshell, a debt consolidation loan involves a customer taking out one large loan to pay off multiple small debts at once. These loans are typically extended by financial institutions as personal loans that cover all outstanding debts of a person. Once the borrower has used the immediate funds to pay off his/her creditors, they then pay back the financial institution in periodic principal and interest payments just like a regular loan. In essence, the smaller debt components get accumulated into one large debt piece that is typically offered at a lower rate of interest, thus providing both financial and efficiency benefits.


To Learn about other loan types visit our guide on Loans in Canada Explained.

Who can qualify for debt consolidation?

It is important to remember that there are two types of debt consolidation loans: secured and unsecured. Secured loans require the borrower to put up some personal asset as collateral, which can be claimed by the lender in the event of default. Unsecured loans, on the other hand, are not secured on any personal asset, implying a higher risk for the financial institution. This higher risk translates into a higher rate of interest as well to compensate the lender for the additional risk undertaken.

Thus, when lenders evaluate potential borrowers who are looking to take out a debt consolidation loan, there are four main criteria that they would use to make their decision: proof of income, credit history, financial stability and any assets or equity. 

  • Proof of Income

    Whether the loan is secured or unsecured, this is the key metric used to determine the borrower’s financial capabilities to regularly meet interest and principal repayments as they come.

  • Credit History

    As with any other personal loan, a higher credit score offers the benefits of more attractive pricing terms to the borrower as the lender has greater confidence in repayment based on historical precedent.

  • Financial Stability

    A secondary, but equally important consideration is the borrower’s current financial stability. If the borrower can show predictable expense patterns and/or additional sources of income, they are more likely to be approved for the eventual debt consolidation loan.

  • Equity

    Though most debt consolidations are done on an unsecured basis, offering equity collateral can significantly increase the borrower’s chances of approval and getting a lower rate of interest on the debt consolidation loan. This does have its own risks as explained later in this article.

What types of debt can be consolidated?

In terms of what type of debt can be classified as eligible to be consolidated, there are certain parameters set out that vary by financial institution. As a general rule of thumb, the following types of credit are generally able to be merged together as part of the debt consolidation loan:

Credit Card Debt: In Canada alone, there are 3 billion credit card transactions made every year. An Equifax report stated that these originated from 31 million individual accounts, of which 30% didn’t pay back the credit card balance at the end of each month. Annually, this is approximately $7 billion just in interest for late payments.

Public Utility Debt: Public utilities include water (hydro), electricity, natural gas, telephone services and other essentials provided by a specialist provider. Typically, these companies charge the consumer at the end of each month with payments due within ~2 weeks. The debt from these can be bundled into a debt consolidation loan.

Other Consumer Loans: Broadly speaking, consumer loans are debts taken out for a multitude of purposes including auto loans, student loans, and other personal loans.

Mathematically Sound:

There are several advantages to obtaining a debt consolidation loan. However, most borrowers that consolidate their debt are primarily looking to decrease the interest payments they make per month. To do this, they rely on the simple fact that debt from credit cards and other consumer loans as mentioned above typically has a higher interest rate tag attached to it. For example, credit cards charge 8-12% on the low end and 23% on the upper end for payments that are made past the due date.

This means that if the borrower is able to receive the debt consolidation loan at a reasonable rate provided by retail banks, he/she can stand to save up to 5% or more on each payment. In other words, on every $1000 of debt owed, the borrower is now in a position to save $50 by way of lower interest payments – even though the principal has remained exactly the same!

Key Advantages of Debt Consolidation Loans:

There are several pros of debt consolidation loans when compared to alternative forms of debt reduction. While the main attraction remains the lower interest rate as explained above, some of the secondary advantages are: improved credit rating, simplifying payment and debt management, credit protection and term extension on outstanding payments. 


For additional resources on how to become debt free check out this page from the Government of Canada.

Credit Rating

With a debt consolidation loan, the credit rating remains protected as the principal is still being paid back in full to all creditors. In fact, with a disciplined repayment process, the credit rating could actually even improve.

Term Extension

While credit cards, utility bills, student loans and other forms of short-term debt come with a short deadline for repayment, loans provided by financial institutions are generally longer, which means that coupled with the lower interest payments, the overall monthly repayment amount is substantially lower.

Simplify Your Life

With all payments being bundled into one single payment to one single lender, the borrower streamlines the periodic repayment process to ensure that no payments are missed or forgotten inadvertently.

Creditor Pressure

As creditors are all paid out right after the issuance of the personal loan, there is no additional pressure to pay back on accelerated timelines.

Factors to Consider:

While debt consolidation loans offer a host of advantages, there are some caveats that need to be kept in mind:

1. Principally the Same: Only the interest amount is liable to change post-debt consolidation. The principal amount remains exactly the same.

2. Keep the Bad Habits at Bay: Often, borrowers fall into a false sense of security after debt consolidation when they see the additional capacity under the credit card. This could lead to overspending again, which brings them back to square one.

3. Security Troubles: A secured loan where the borrower puts up collateral and fails to pay may lead to reclamation of the asset by the lending institution, which tends to be much less forgiving of such instances than credit card or utility companies, who can earn money off of the late payments.

Debt Restructuring vs Debt Consolidation

A comparable debt reduction technique is debt restructuring wherein creditors agree to forgive a portion of debts in exchange for prompt payments of the remainder. The main differences between debt consolidation and a debt restructuring is explained below:

Debt Restructuring

– Existing debt contracts with creditors are re-negotiated.

– Users of debt restructuring are generally financially challenged to repay debt.

– Restructuring has a detrimental impact on credit score with the record staying up to 3 years.

Debt Consolidation

– A new loan contract is drafted with the previous contracts being paid off.

– Users of debt consolidation don’t have to be financially challenged to want to capitalize on its benefits.

– Consolidation does not impact the credit score as long as the borrower repays debts on time.

What the Numbers Say:

The debt to income ratio is one of the primary indicators used by economists to evaluate the level and sustainability of household debt within an economy. Essentially, it shows the level of debt payable for each dollar of income earned i.e. a ratio of 150% would imply that for every $1 that a borrower earns, he/she has to pay back $1.50. In Canada, this number is amongst the highest in the world of all developed economies, currently standing at 176.2% as of January 2019. Of this debt, a report released by the CMHC in 2017 stated that non-mortgage debt (comprised of auto loans, credit cards, and all other credit) accounted for 19% of total debt outstanding.

In such an environment, debt consolidation loans can often be one of the main tools available to consumers looking for debt relief, but hesitant to impact their credit score.

Debt Consolidation Statistics Canada

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Debt Consolidation Loans Frequently Asked Questions


Can I get a debt consolidation loan with poor credit?

While your options will be more limited, it is possible to get debt consolidation loans with bad credit. The only issue is you may need to shop around a bit, and your interest rates could be higher.

If you want easier access to a debt consolidation loan and better rates, you will want to improve your finances in a few ways. Debt consolidation lenders don’t only look at your credit score. They will consider your debt to income ratio as well. So, tackling your credit card debt and clearing any small debts you have, will help you access loan consolidation with bad credit.


What are the benefits of a debt consolidation loan?

There are several advantages to consolidating your debt. First, you can often get a better rate that reduces the overall cost of your repayments. You will also have an easier time dealing with one, single, large debt than you will have dealing with multiple smaller debts. This makes it easier to keep up with minimum payments and avoid rising costs. In this way, debt consolidation also helps you protect your credit score.


Are there any disadvantages to consolidating your debt?

There are potential downsides to a debt consolidation loan. In most cases this kind of debt relief is unsecured. However, in some cases, the lender will require collateral. Be careful and make sure you understand all the terms of your loan clearly, especially when considering using your personal assets as collateral.

The main downside of debt consolidation loans is that they extend your repayment terms. While the loan itself can help keep you financially afloat, extended terms mean you will stay in debt for longer. Furthermore, lower interest rates are not a guarantee. If you end up consolidating your debt with a higher-interest loan, you will be in debt for a longer time while making larger payments. The loan could end up costing you significantly more. So, make sure to review your loan terms thoroughly before making a final decision.


Secured vs unsecured debt consolidation loans

While both secured and unsecured versions of debt consolidation are common, there is a reason why many people prefer an unsecured debt consolidation loan. That’s because you are not risking any personal assets, such as your home.

The main advantage of secured debt consolidation loans is that they will get you better interest rates. This is because you are using personal assets as collateral on the loan. The reduced risk for the lender will make them more willing to charge you less.


What are the steps to consolidate your debt?

You can follow a few simple steps to consolidate your debt.

  1. Shop around for debt consolidation loans.
  2. Apply for several loans and compare the rates and terms they offer you.
  3. Choose the lender that’s best for you.
  4. The lender will assess your credit score and debt to income ratio to come up with an agreement.
  5. Accept the terms the lender offers and receive your debt relief funding.
  6. Repay the debt consolidation loan as per the terms you agreed to.

Additional Reading on Debt Solutions

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