Obtaining a Personal Loan in Canada

A personal loan is ideal for those who want to purchase something, anything, that requires a larger amount of money. This loan is paid back monthly in fixed installments to the lender that you choose to work with. This type of loan is ideal to use for a wide range of things or purposes, so it is a great way to obtain the funding you need for many things.

Personal loans have a lot that go into them, so understanding more about them can put you in the best position to borrow. We’ve gathered information about personal loans, so you can make the most informed decision on whether to get these loans or not.

What is a Personal Loan and How Does it Work?

Personal loans are an installment credit, like a credit card, except you get a large lump sum payment from the financial institution to spend on any purchase you want to make. The borrower then pays back the amount they borrowed, plus the amount of interest that they agreed to pay on top of that flat amount borrowed.

The lifetime of the loan payback is known as a term. This is the amount of time it takes to pay the loan back. A monthly payment is sent into the financial institution to pay this back. This includes the regular monthly amount from the amount borrowed and the interest amount added to it.

Personal loans are ideal to have for a number of reasons, and depending on your specific reasons, you will find that this is a great loan to have for various purchases.

Requirements for a Personal Loan from a Lender

The requirements vary from lender to lender, so this is important to remember. While researching each of the lenders, make sure to read more about their specific requirements.

As a rule of thumb, lenders are going to request these specifications from an applicant.

  • You have to be over the age of 18
  • A resident of Canada with proof of residence 
  • Have a bank account 
  • Proof of identity 
  • Proof of income 
  • Proof of monthly bills 
  • Credit history – ideally with a score over 650, higher than this for better interest rates 
  • No history of bankruptcy and a low debt-to-income ratio 

By showing proof of this, you’re better able to take advantage of a personal loan that allows you to purchase just about anything that you want or need.

Types of Personal Loans

There are several personal loans that you can take advantage of. Knowing more about the types of loans can help you decide which personal loans are the most ideal for your specific situation.

Secured Loans

You will have to put or use something as collateral on the loan such as expensive jewelry, a house, car, or other large item. They have lower interest rates, but if you cannot make the payments then you will lose the items that are up for collateral.

Unsecured Loans

You will not need to put anything up as collateral to borrow from one of these private loans. You need a better credit score and pay higher interest rates, but you won’t lose your items if you default on the loan.

What Can I Use a Personal Loan for?

A personal loan has many uses, and depending on your particular needs, you will find that a personal loan is an ideal choice to go with when you need a large lump sum of cash.

  • Down payments on a home, vehicle, or other large purchase 
  • Consolidating debt 
  • Medical or surgical expenses 
  • Home improvements 
  • Vacations 
  • Dental visits and procedures

Feel free to use the loan however you’d like to use it. This can provide you with a way to get ahead, or even to enjoy more out of life when you put the loan towards something you have wanted.

You want to make sure you’re choosing the right loan amount that you can purchase the specific thing you’re borrowing for, but also that you can pay the loan back on time and be able to afford the payments that you are supposed to be making.

Do shop through the available loans and lenders to choose the ones that fit the best with the needs you have. This way, you get the perfect fit for your needs to the loan you’re using.

Get a recap of the best places to get a personal loan. Compare best personal loan rates, find trusted lenders and choose the optimal personal loan for your individual needs.

Frequently Asked Questions About Obtaining a Personal Loan in Canada

Are there stipulations to what I can spend my personal loan on?

There are not. You can use a personal loan for everything from purchasing appliances for your home to student school payments, and anything else in between. Home renovations, vacations, and more can be purchased by using personal loans. This makes them a flexible choice for paying for many things.

Do I need to have a great credit score to get a personal loan?

You do not have to have an amazing credit score but having a higher one is going to put you in the best position to get better interest rates. There are minimum credit scores to be aware of when applying, though.

Will getting a personal loan hurt my credit score?

Your credit score might go down a bit when you sign up to get the loan, as they have to check your credit history and score. If you make payments on time, every time throughout the life of the loan, then this can help your credit get higher, instead of hurting your score.

If you default on the loan though, this could severely hurt your credit score and depending on the type of personal loan you have, you might lose the piece of collateral on the secured loan that you have.

Can I pay off my personal loan earlier than the repayment period?

This can save money in the interest you’d have to pay if you don’t pay it off earlier. However, it is important to find out if they charge fees or penalties for paying off the life of the loan earlier than the specific timeframe. If you want to pay it off early, or think you might, ask about this before you sign on to get the loan.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?

Amanda Leach

Fifteen years can be a long time to work in one industry, but not when you are doing something that you love. Amanda has enjoyed the freedom of working as a freelance writer for the majority of her career. She has successfully combined her passion and skill for writing while still enjoying a life filled with travel, learning and exciting new experiences. While she loves exploring all different types of writing, her PhD in Consumer Psychology has made her a sought after writer for marketing, business and technology fields. Amanda is a regular contributor to Smarter Loans.