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Every once in a while everyone needs a little bit of help. Whether it is to catch up on overdue bills or cover an emergency expense, a fast personal loan can be a great solution to get you over the hump. At Smarter Loans, we review and qualify Canada’s best personal loan providers so that we can connect you with only the most trustworthy companies. Even if you don’t have perfect credit, we can find the right lender to help you get approved for a personal loan. Pre-apply for a personal loan online here, or check out the list of reputable Canadian lending companies to find the best rate for you.
We can help connect you with the top personal loan providers in Canada.
A personal loan is when you borrow a fixed amount for personal needs (as opposed to for business needs) from a lender and agree to paying it back by instalments over a specified timeline. Personal loans usually have specific reasons like paying for a large expense, doing home renovations, consolidating debt and much more.
Personal loans can vary in size and terms. Unsecured personal loans are typically between $500 and $10,000. They can be much larger in size, going up to $30,000 and more, especially if the loan is secured, such as a home equity loan.
Personal loans work a lot like other loan types. You’re borrowing money from a lender that you eventually have to repay with interest and fees, as applicable.
The loan amount is how much the lender is willing to lend you. This depends on several factors including your income, credit, debts and whether the loan is secured or unsecured against your personal assets.
A loan’s term is the length of time the loan can be outstanding before it’s needed to be repaid. This isn’t to be confused with repayment terms, which is length of time the loan must be paid back in full.
Depending on the lender and product, the interest rate may be fixed or variable. Variable personal loan interest rates tend to be lower, but your interest rate may go up during you loan term. You’ll need to decide whether it’s worth taking the added risk of variable.
This is the amount and length of time you’re required to pay back the money you borrow in full. Before taking out a personal loan, it’s important to make sure you can afford your monthly payments and avoid defaulting on the loan.
Some loans may come with upfront fees and ongoing fees. You’ll want to find out about any fees and how often the lender requires you to pay them.
Personal loans come in all different shapes and sizes. The most common personal loan types are: unsecured installment loans, home equity loans, auto loans, mortgages and car title loans. Personal loans can be secured and unsecured. Secured loans, such as home equity and car title loans require the borrower to put up collateral, such as the equity in their home or vehicle.
Lenders consider several factors before they’ll approve you for a person loan. It’s helpful to know the qualification criteria before applying to ensure your loan application is a good fit for the lender since each loan application counts towards your credit score, even if it’s declined. Requirements for a personal loan typically include steady income from employment, being a Canadian citizen or permanent resident, being over the age of majority and having at least a fair credit history and rating. Individuals that are in collections from previous loans or are under an undischarged bankruptcy or consumer proposal will have a more difficult time getting approved for a personal loan.
If you have any debt (mortgage, line of credit, student loan, car loan, etc.), it must be factored into the loan application. That’s because the lender will want to know how much of your monthly income is already going towards servicing other debt. If you have too much debt, your loan amount could be reduced or worse, your loan application could be denied.
Are you paying alimony/spousal support or child support? This must be factored into your personal loan application. If you’re in receipt of these, it may help you qualify for a higher loan amount if it’s counted as income.
All things considered equal, the better your credit score, the easier it will be to qualify for a personal loan. Lenders look at your credit history and credit score to deem whether you’re a creditworthy borrower. If you have poor credit, you may be required to pay higher rates or your application could be turned down.
The higher your income, the easier it is to qualify for a loan. If you can’t qualify for a loan on your own, you might consider adding a cosigner or guarantor to the loan application.
Someone who’s a salaried employee will typically have an easier time being approved for a personal loan than someone who is on contract or self-employed.
If you own any valuable assets, there’s nothing stopping you from using them as security to help get an even lower interest rate on your personal loan.
The repayment amount and terms helps you stay on track. You’ll know exactly when your loan must be repaid.
Unsecured personal loans tend to be easier to qualify for than secured lines of credit and secured loans.
You can often choose the repayment term based on what works best with your cash flow. Loans usually can be paid off in between 6 and 60 months.
Personal loans are ideal for covering large one-time fixed expenses, such as a costly home renovation or car repairs, when you don’t plan to borrow anymore funds.
A personal loan can be great for consolidating debt. Not only could you have a lower interest rate, you’ll only have one payment to worry about.
Unsecured personal loans tend to come with higher interest rates than secured lines of credit and secured loans.
If you’d like to borrow additional funds, you may be required to apply for a new loan.
Personal loans tend to come with a strict repayment schedule. If you’d like a more flexible repayment schedule, you might consider signing up for a line of credit instead.
A personal loan can be used towards a variety of purposes. Common uses for personal loans in Canada are home improvement projects, debt consolidation, paying off overdue bills, paying for emergency or medical expenses, and much more. It is important to remember that these purposes will have to be articulated at the outset of the borrowing relationship with the lending institution. Banks and lenders most often use the loan purpose as one of the factors to assess the level of credit risk – probability that the borrower will be able to successfully repay the loan.
When medical expenses are not repaid on time, there is a quick and direct impact to the credit score. Personal loans can help in managing these expenses by paying off the amount in smaller instalments, and thus preserving the credit score.
In certain situations, the rate of the student loan could be higher than the rate that could potentially be received on a personal loan. In these circumstances, there is a sound rationale for borrowing funds to pay off the student loan in entirety and saving on interest costs over the life of the loan
While there are often specialist loans for this exact purpose, a personal loan can also be used to conduct improvement projects within the house. These could be emergency repairs (such as fixing a roof damaged by rain) or non-emergency renovations to boost the value and/or aesthetic appeal of the house.
A wedding can often be a costly affair that can put a strain on a couple’s finances right at the inception of the marriage. A personal loan can alleviate this burden, but should be handled carefully to prevent overspending.
As an upcoming entrepreneur looking to launch a small business, the personal loan can be highly beneficial as initial capital for the inception costs of getting the business off the ground. These loans should be handled with care, particularly if they are secured against the borrower’s personal assets.
Faced with the prospect of multiple creditors, borrowers can often become overwhelmed with paying them back on time each month. Transaction costs may also factor into the equation if the borrower has to pay banking/wire transfer fees for each repayment made. The personal loan can be used to pay off the individual debts. Thereafter, the borrower only has to make one payment to the lender each period.
They are calculated through a combination of borrower-specific (income, credit score, assets etc.) and macroeconomic (central bank rates, inflation) factors. Interest rates (APR) on personal loans can be as little as 4% but can go up to 40% and more.
Typically, personal loans do not come with prepayment penalties. However, it is important to confirm that with the lender prior to prepaying the loan. If the lender allows this, the benefits of prepayment could include lower interest costs over the life of the loan.
While different lenders will have different requirements for minimum credit scores, credit history and income levels, the baseline requirement for borrowers includes Canadian residency, steady employment, being 18+ years of age, and having a Canadian bank account.
The precise amount depends on whether the borrower is willing to put up asset collateral, as well as the level of income and credit history they possess. Personal loans are typically between $500 and $10,000 but can be much higher.
Depending on the purposes of the loan and the profile of the borrower, both have individual merits. With unsecured loans, the borrower does not have to risk any personal assets such as their vehicle or even their home, in the event they cannot repay the loan. However, the interest rates are typically higher on unsecured loans, and they are smaller in size, due to the extra risk for the lender. Secured loans, on the other hand, such as car title and home equity loans, use the borrower’s assets as collateral. This makes the loans less risky for the lender, and the borrower can take out a larger sum of money at a lower interest rate.
Sean Cooper is the bestselling author of the book, “Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians”. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. Sean is a personal finance journalist, money coach and speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense.
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