Personal loan interest rates offered by Canadian lenders often vary with the changes in prime rates. As of December 2023, the interest rates for personal loans in Canada approximately range between 7.20% and 45%. While the term low interest rate is subjective, the lowest available rates are generally close to the prime rate. The rates are currently higher than usual due to the elevated Bank of Canada rates as a measure to curb inflation. A good credit score and a reliable credit profile can be a big advantage when you get a loan. You can qualify for a loan at a low-interest rate, which can reduce the overall cost of borrowing significantly. The table below shows some of the best personal loan interest rates available in Canada.
|Interest Rates(December 2023)
Coast Capital Savings
|1 to 8 years
|9.99% - 46.99%
|$500 - $35,000
|6 months - 5 years
|12.99% - 39.99%*
|Up to $10,000
|9 months to 5 years
|All provinces except QC
|7.20% - 14.20%
|1 - 5 years
FirstOntario Credit Union
|6 months - 5 years
Meridian Credit Union
Steinbach Credit Union
|8% - 46.96%*
|$500 - $50,000
|3 months to 10 years
|Fixed Rate from 9.65%
Variable rates from 12.2%
|Up to 5 years
|Fixed rate from 15.29% Variable rate from 13.7%
|Up to $50,000
|6 months to 10 years
|Mainly in QC
*APR (Annual Percentage Rate)
As per data from the Bank of Canada, the average interest rate charged by chartered banks for new personal loans, including auto loans, in Canada as of October 2023 was 9.46%. Meanwhile, the average interest rate for outstanding personal loans was 6.98%. In the same month, the average interest rate of new consumer credit, including all personal loan plans, secured lines of credit and unsecured lines of credit was 9.04%.
There are several types of lenders offering low-interest-rate loans to well-qualified borrowers in Canada, such as:
Banks: Banks, including the big five banks, offer personal loans at very competitive interest rates but usually have very strict qualification criteria. Banks usually require you to have a high credit score and a stable source of income to get approved. Personal loan rates offered by banks are often dependent on their prime rate. Banks usually don’t advertise their personal loan rates and offer you rates based on your credit profile and overall financial situation. If you are a banking customer with a bank, you may have access to special promotions and offers from the bank.
Key Features of Personal Loans from Big Banks
|1 - 5 years
|$5,000 to $50,000
|1 - 7 years
|Up to 5 years
|Up to 5 years
|1 - 5 years
The table below compares the cost of the loan with a low interest rate vs a high interest rate.
|Low Interest Rate
|High Interest Rate
|Total Interest Paid
|Total Lifetime Payment
We can see that with a high interest rate, the monthly loan payments, as well as the total interest are significantly higher than when the interest rate is low. You can use WOWA’s loan calculator to calculate the payments and interest paid on loans with different interest rates.
The basic documents required for a loan application are listed below.
|Passport / Driver’s License / Other Government-Issued ID
|Proof of address (may not be required if the identification document shows address)
|Paystubs and/or T-slips
|Proof of Income
|Proof of employment
|Recent CRA My Account Assessment, NOA and corresponding T1 General 4-page summary
|Proof of employment or self-employment (May not be required if you aren’t self-employed)
Some lenders may require other documents such as a direct deposit form. If you have a cosigner on the application, their documents will also have to be submitted.
The general steps involved in the loan application process are as follows:
There are a few types of personal loans that typically have a low-interest rate:
Having a strong credit profile and stable income can help you get a low-interest-rate loan. This is because lenders will perceive you as a low-risk borrower capable of paying off your loan. Listed below are all the factors that can help you secure a low-interest-rate loan in Canada.
Strong Credit Profile: Having a well-established credit history with a good credit score demonstrates responsible credit behaviour. This is because you build a good credit score by making on-time credit payments over a period of time. Meanwhile, missing payments or making late payments has a negative effect on your credit score, and delinquencies are noted on your credit file, which can be seen by anyone who runs a credit check on you.
The higher your credit score is, the less risk you pose to the lenders, and thus lenders will be willing to offer you loans at a low-interest rate. Before applying for a loan, you can check your credit score for free (without affecting your credit score). If your credit score is low, you can work on improving your credit score before applying for a loan, as it can help increase your chances of approval and fetch you better terms for the loan.
Fewer Hard Credit Checks: Whenever you apply for any kind of loan or for a credit card, the lender runs a credit check on you, which is noted as a hard inquiry on your credit file. Having too many credit checks on your credit profile recently can be a sign that you have recently taken up too much debt or have been rejected by multiple lenders. Lenders perceive this as risky behaviour and may be unwilling to offer you a loan at a low-interest rate. Therefore, you should refrain from applying for credit very often and keep at least three months of gaps between credit applications.
Stable Income: Having a stable job or reliable source of income shows that you have the means to make loan payments on time. Being employed by a well-established company is perceived as lower risk by lenders than being employed by a new company. Meanwhile, salaried employees are viewed as less risky compared to contractors. Lenders typically want to see your proof of employment and income for the last two or three years to qualify you for a low-interest rate loan.
Minimum Income: Apart from having a stable income, many lenders also require you to meet a minimum income requirement. Lenders may reject your application if you don’t meet the minimum income requirement, even when you check all the other boxes. Typically, lenders require you to have a minimum monthly income of $1,200 to $1,500.
Low Debt to Income Ratio: The debt-to-income ratio is the ratio of monthly debt payments to monthly income. This ratio should ideally be under 40% to qualify for a low-interest-rate loan.
Collateral: Having collateral, such as a house, a car or even cash, can lower the risk for the lender as the lender can seize the collateral if you fail to repay the loan. Thus, lenders usually offer a lower interest rate for loans with collateral.
Net Worth: Your net worth is your assets minus your debt, and lenders look at your net worth to determine how much of a loan you can realistically afford. Having a positive net worth can help you qualify for a low-interest-rate loan. Meanwhile, you may not qualify for a low-interest-rate loan if you have more debt than assets.
Before applying for a loan with a lender, you should compare the interest rates offered by different lenders, such as banks, credit unions and online lenders. You should also check if the rates offered are for secured and unsecured loans and if the rates are fixed or variable.
You should also look at the APR (annual percentage rate), which is the interest rate plus fees. You may also check for any rate discounts your bank may be offering its customers.
Lenders may charge different types of fees, such as fees for processing the loan, fees for missed payments, etc. The common types of fees the lender may charge include:
Apart from these common fees, the lender may charge other fees, such as a closing fee at the time of closing of the loan, a discharge fee if you have to discharge the lender from a collateral asset’s title and more.
The maximum amount that can be borrowed through an unsecured personal loan is usually $50,000, which is generally offered by banks. The maximum loan amount online lenders offer is typically lower, generally between $20,000 to $35,000. However, the loan amount you qualify for will depend on your unique situation. There is often a minimum amount that you can borrow, which is in the range of $500 - $5,000.
If you are getting a secured loan, the loan amount will also depend on the value of the collateral.
The common repayment term lengths offered by lenders are 1 to 5 years. However, some lenders also offer repayment terms starting from 3 months and up to 7 years.
If you are looking to get a loan urgently, online lenders may be your best bet, as many of them approve borrowers within a day or two. Banks and credit unions require more due diligence and can take from a few days to a few weeks to approve your loan application. Banks and credit unions also have more comprehensive application procedures compared to online lenders.
Repaying the loan early can save you thousands of dollars in interest; however, some lenders can charge a prepayment penalty when you pay off the loan early. Most lenders allow changes to your payment, such as changing the payment frequency, amount and due date. Be sure to ask the lender about early repayment options and the flexibility they offer.
You should ask the lender how much of your monthly payments will go towards the principal and how much of it will be used to pay the interest. Some lenders may use the entire monthly payment amount to pay off the total interest before deducting it from your principal. This could be a disadvantage if you plan to pay off the loan early, as you would still end up paying the interest for the entire term.
Verifying a lender’s genuineness and reading their reviews before getting a loan is extremely important. While banks and credit unions are highly regulated financial institutions, small lenders are free from many regulations. If a lender is pressuring you to get a loan quickly or trying to sell you a larger loan amount than you need, these can be red flags. When it comes to online lenders, you should check if they have disclosed their interest rates on the website.
The interest rate lenders offer you for a loan highly depends on your credit score. Therefore, people with bad credit find it difficult to qualify for a personal loan with a low interest rate. When lenders lend money to persons with bad credit, they take on a greater risk compared to when they lend to borrowers with a good credit score, and therefore, lenders charge them a higher interest rate. However, there are a few ways borrowers with a low credit score can get a better interest rate:
Canadian lenders do not offer interest-free loans as they have no incentive to do so. However, some stores in Canada offer short-term interest-free loans to shop with them. For example, Home Depot offers the Home Depot Project Loan of up to $50,000 for a 0% APR for up to 6 months.
If you require to borrow some money for a very short time (<21 days), you could consider getting a credit card and paying off the balance within the grace period, which is usually 21 days. Paying off the balance within the grace period does not incur any interest charges. Meanwhile, some credit cards, such as the MBNA True Line Mastercard, also offer 0% APR for a limited time on balance transfers. If you are carrying a balance on your credit cards, you could consider transferring it to such a card to reduce the interest on the money borrowed.
No. Lenders offer low-interest-rate loans only to borrowers with a good credit score, and it is a standard practice for lenders to run a credit check on borrowers to check their credit score and file. No credit check loans typically have a higher interest rate as the lender is taking a higher risk by not running a credit check on you.
Yes. There is no restriction on how you use a low interest rate loan. You can use it for debt consolidation, making big-ticket purchases such as a car, paying bills or any other purpose that you please. If you are using the loan for debt consolidation, you should ensure that you don’t end up paying more in the long run.