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Personal loans are one of the most popular loan options in Canada. Moreover a personal loan can be a great solution to help to catch up on overdue bills or cover an emergency expense. 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. Pre-apply online here, or check out the list of reputable Canadian lending companies (below) 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. Personal loans usually have specific reasons like paying for a large expense, doing home renovations, or consolidating debt. Afterwards these loans are repaid by instalments over a specified timeline.
Personal loans can vary in size and terms. Unsecured loans are typically between $500 and $10,000. They can be much larger in size, going up to $30,000 and more. If the loan is secured, such as a home equity loan the amount can be over $100,000.
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.
Overall, there are many lenders to choose from in Canada. Some factors to consider when choosing the right loan and provider for you are: loan amount, term length, fees, interest rates and repayment structure.
Personal loans come in all different shapes and sizes. The most common 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. Each loan application counts towards your credit score, even if it’s declined.
Requirements typically include steady income from employment, being a Canadian citizen or permanent resident. You must be over the age of majority and have at least a fair credit history and rating. Alternatively, individuals that are in collections from previous loans or are under an undischarged bankruptcy or consumer proposal will have a difficult time getting approved.
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 going towards other debt. If you have too much debt, your loan amount could be reduced or 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 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 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.
The repayment amount and terms helps you stay on track. You’ll know exactly when your loan must be repaid.
Unsecured loans tend to be easier to qualify
You can 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.
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.
These 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.
Common uses for personal loans in Canada are home improvement projects, debt consolidation, paying off overdue bills, paying for emergency or medical expenses.
It is important to remember that these purposes will be shared with the lending institution. Banks and lenders may use the loan purpose as one of the factors to assess the 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.
In certain situations, the rate of the student loan could be higher than the rate on a personal loan. In these circumstances, there is a sound rationale for borrowing funds to pay off the student loan. This would lead to saving on interest costs over the life of the loan
A personal loan can 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 of the house.
A wedding can often be a costly affair that can put a strain on a couple’s finances. A 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. It can be used as initial capital for the inception costs of getting the business off the ground.
Faced with multiple creditors, borrowers can often become overwhelmed with paying them back each month. A personal loan can be used to pay off the 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, these 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.
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.Unsecured loans are smaller in size, due to the extra risk for the lender. Secured loans 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.
These companies are recognized for their excellent service, product offering and financial literacy education for all Canadians.
